Memorandum submitted by Professor Wells
(BB 15)
SUPPLEMENTARY QUESTIONS
TO PROFESSOR
CELIA WELLS
(a) Professor Horder stated in evidence that
removing the requirement to prove negligence under clause 5 would
be unfair to businesses and mark a step change from any comparable
criminal offence (Qq 61-64). What is your response?
Response to question 1:
1. Background 2. Other jurisdictions 3.
A step change? 4. Unfair?
1. Background comments
We have a long tradition of corporate liability
for criminal offences committed by employees/agents. The most
straightforward case is where the offence committed by the employee
is one of strict liability (no proof of intention, recklessness,
knowledge etc required). Although a matter of statutory interpretation,
companies are generally held liable, hence Professor Horder's
example of selling tainted food.
The next category is where the offence committed
is strict liability but with a reasonable practicability qualification.
Health and safety offences fall in this category. Here the statute
places liability on "employers" via duties the breach
of which is a criminal offence subject to a "reasonable practicability"
defence (s 40). Where the employer is a company it will be liable
for health and safety breaches committed by its employees. The
failure to prevent offence in clause 5 could be seen as analogous.
Here the duty is to prevent bribery. (I explore this further in
the answer to the burden of proof question below).
The much criticised common law identification doctrine
is applied to the next category, where the offence requires proof
of intention, recklessness or knowledge. Under this the company
can only "intend" or "know" through its directors
and senior officers. It is much criticised because it so restricted
in scope and only of practical application in very small companies.
Bribery offences fall in this category and this explains the OECD's
view that we do not comply with art 2 of the Bribery Convention.
In my view it is the thinking behind the identification
model—thinking which seems also to inform the Law Commission
and the draft Bill—that has led us astray. Companies are
separate "legal" persons as a matter of law but that
does not mean they are in fact separate from the many human persons
who make up their operations. There is no particular reason why
a particular layer of company officer should be said to act as
the company than any other. Companies are complex organisations
which function as a whole, as entities producing goods, providing
services etc through many different people and roles.
2. What do other jurisdictions do?
Common law derivative jurisdictions such as
the US and Australia have taken a much broader approach to corporate
liability at the federal level. The thinking which led to the
identification model (that corporations can only "intend"
through senior officers because only they can be said to embody
the corporation) has not been followed. Similarly, most of those
European jurisdictions which previously had quite limited Penal
Codes with no corporate liability at all have now developed general
provisions which use a broad liability (some based on failure
to supervise, others strict liability with a due diligence defence).
The draft Bill adopts the Law Commission's proposal
of negligent failure to supervise combined with an adequate procedures
defence conforms to none of these broader models. The proposal
appeared only in the Report in November 2008 and was therefore
not tested at the consultation stage.
3. Is removing proof of negligence a step
change?
1. The proposed offence is itself a change.
We need that change because otherwise we will be left with the
ineffective common law identification method of holding companies/businesses
liable for their employees'/agents' bribery offences. But as it
stands it is not a step change. It is much narrower than both
current liability for regulatory strict liability offences and
liability for breach of health and safety duties. It is also narrower
than comparable bribery provisions in other jurisdictions.
2. It would perhaps be a step change for corporate
liability for an offence requiring proof of intention or knowledge
if both the requirement to prove negligence and the adequate procedures
defence were removed.
3. Removing the negligence requirement would
bring corporate liability in line with employers' liability for
health and safety offences. It would also bring us approximately
in line with the US, Austria, Finland and Switzerland (see
Appendices below for examples).
4. The Australian corporate culture approach
is also more expansive. Rather than seeking to attribute fault
from an individual to the company, it begins with the company
itself. The OECD commented that the Australian provision is "ambitious
and progressive... in particular liability based on a corporate
culture conducive to the criminal conduct in question. The lead
examiners regard section 12 as a commendable development, and
well-suited to prosecutions for foreign bribery.'[147]
The relevant sections are set out in full in Appendix 1 but in
summary it provides: "bodies corporate" are liable for
offences committed by "an employee, agent or officer of a
body corporate acting within the actual or apparent scope of his
or her employment, or within his or her actual or apparent authority"
where the body corporate "expressly, tacitly, or impliedly
authorised or permitted the commission of the offence". The
OECD comments that "Section 12 is generally detailed enough
to enable companies to know with adequate precision what conduct
is prohibited."[148]
4. Would it be unfair on businesses?
Not in my view because, as I argue above, the
debate about corporate liability starts from the wrong foot or
premise. A company's liability for the acts of its employees is
appropriate—and this is particularly applicable in the bribery
context—because those acts benefit the company, those acts
are undertaken with company resources (where does the money for
the bribe come from? who signs the contracts? where do the profits
end up? The answer in each case is "the business") and
companies are peculiarly equipped to supervise and monitor the
acts of their employees and agents.
(b) The burden of proving "adequate procedures"
is due to fall on the defendant. What would be the pros and cons
of placing this burden on the prosecution? Is this something that
you recommend?
Response to question 2:
1. Clause 5 is intended to address a deficit
in our law in respect of corporate liability for bribery offences.
It is hard to think of a pro if both the evidential and the probative
burden in relation to adequate procedures were to fall on the
prosecution. At most it could be said that if the prosecution
has the burden of proving beyond reasonable doubt that the procedures
were adequate this would allay the fears that the business community
may have about the proposed offence because it would make it very
hard to prove!
2. The cons of placing the burden on the prosecution
are that company procedures may be difficult to access. Clause
5 can only be triggered where the prosecution has proved that
a bribery offence has been committed. If the burden is placed
on the prosecution it is likely to be very difficult to prove
that the procedures were inadequate beyond showing that the offence—the
bribe—has in fact taken place.
3. Placing the burden on the defence is
consistent with employers' liability for breaches of health and
safety duties under the Health and Safety at Work etc Act 1974.
The House of Lords recently considered the respective obligations
of the prosecution and the defence. In rejecting the appellants'
argument that the prosecution should identify and prove particular
acts or omissions consisting of the failure to comply with the
duties laid down in sections 2 and 3, Lord Hope stated:
"What the prosecution must prove is that
the result that those provisions [the duties to ensure health
and safety under ss 2-4] describe was not achieved or prevented.
Once that is done a prima facie case of breach is established.
The onus then passes to the defendant to make good the defence
which section 40 provides on grounds of reasonable practicability".
(R v Chargot Ltd [2008] UKHL 73 at para 21).
In that case the House of Lords also rejected
the argument that it was disproportionate (particularly in light
of the increased penalties under the HSAW Act 2008) for the burden
of proving that it was not reasonably practicable to be placed
on the defendant. Lord Hope approved the reasons given by Tucker
L J in R v Davies (David Janway) [2003] ICR 586:
"Regard had to be had to the fact that the
Act's purpose was both social and economic, to the fact that duty
holders were persons who had chosen to engage in work or commercial
activity and were in charge of it and that in choosing to operate
in a regulated sphere they must be taken to have accepted the
regulatory controls that went with it." ([2008]UKL 73 at
para 29).
The same argument applies with equal force to
the prevention of bribery.
(c) Do any other countries extend their anti-bribery
law to cover bribery by a foreign subsidiary of a home parent
company? Should the draft Bill be amended (given that clause 5
may catch subsidiaries that pay a bribe on behalf of their parent)?
1. In answer to the first part of the question:
The US FCPA makes the US parent company responsible for any foreign
subsidiary in which it has at least 50 per cent ownership. The
parent company is responsible for ensuring that the accounting
systems etc comply with the FCPA and the intent of the subsidiaries'
agents may be attributed to the parent so that it is liable under
the anti bribery provision. The subsidiary itself may also be
liable (a recent example concerned Vetco Gray Controls Ltd, the
UK subsidiary of Vetco International, which agreed in 2007 to
pay $12million under FCPA for corruption in a Nigerian drilling
project).
2. Clause 5 should be amended so that:
The parent company is liable for any wholly owned
foreign subsidiary. And there is an argument that it should mirror
the FCPA and cover majority owned subsidiaries.
An analogy can be drawn with State responsibility
in international law under which a State is responsible for the
conduct of persons or entities exercising elements of governmental
authority, or acting on the instructions of, or under the direct
control of, that State.
3. In answer to the statement in parentheses:
yes clause 5 could possibly include parent liability where the
subsidiary is clearly performing services on the parent's behalf.
There is nothing wrong with that outcome. The more significant
point is in answer to the main question- the need for a specific
provision to ensure that parent companies do not avoid liability
under the cover of separate entity subsidiary companies.
OPTIONAL ADDITIONAL
QUESTIONS TO
PROFESSOR WELLSNB Please
only answer these questions if you have matters you wish to raise
in relation to them.
Clauses 1 to 3
(d) Is there a need for specific provision in
the draft Bill to address facilitation payments or trading in
influence?
Response to question 4.
1. The Law Commission's arguments on this
are persuasive. Facilitation payments are regarded as an unfortunate
fact of life in some businesses in some countries. That does not
make them right. They are generally prohibited even in those countries
in which they are rife. The Codes of Conduct of many leading companies
state that facilitation payments are unethical. While they are
not clearly wrong in the way that bribes are they are not exactly
right either. By including a specific defence there is a danger
that they are endorsed as legitimate. In many cases they will
fall outside the definition of bribery as there may be no intention
to obtain or retain business or an advantage. Prosecutorial discretion
is preferable in those cases where they do. The message of the
Bill that bribery is wrong would be diluted if there is a defence.
LC 313 states:
"It should be noted that the OECD Working
Group on Bribery has identified two problems that can arise where
Parties have provided a defence for small facilitation payments:
(1) a certain level of confusion on the part of the
private sector and sometimes the public sector concerning the
differentiation between facilitation payments and bribes; and
(2) an absence of judicial interpretations of the
scope of the defence." (para 5.90)
2. Against this it can be said that the
FCPA includes a defence for facilitation payments, although it
is rarely invoked presumably because prosecutions concentrate
on serious instances of bribery. Australia also provides a tightly
drawn defence:
Australia: Criminal Code Amendment (Bribery of
Foreign Public Officials) Act 1999 No. 43, 1999.
70.4 Defence—facilitation payments (1) A
person is not guilty of an offence against section 70.2 [bribing
foreign public official] if:
(a) the value of the benefit was of a minor nature;
and
(b) the person's conduct was engaged in for the
sole or dominant purpose of expediting or securing the performance
of a routine government action of a minor nature; and
(c) as soon as practicable after the conduct
occurred, the person made a record of the conduct that complies
with subsection (3); and
(d) any of the following subparagraphs applies:
(i) the person has retained that record at
all relevant times;
(ii) that record has been lost or destroyed
because of the actions of another person over whom the first-mentioned
person had no control, or because of a non-human act or event
over which the first-mentioned person had no control, and the
first-mentioned person could not reasonably be expected to have
guarded against the bringing about of that loss or that destruction;
(iii) a prosecution for the offence is instituted
more than 7 years after the conduct occurred.
Note: A defendant bears an evidential burden
in relation to the matter in subsection (1). See subsection
13.3(3).
Clause 4
(e) How should the test of what is "legitimately
due" operate in common law systems where acts are generally
permitted unless prohibited. For instance, would it catch matters
that are legitimate but which may not be expressly permitted (such
as commission or hospitality)?
(f) The Government has dropped the "reasonable
belief" defence that was proposed by the Law Commission.
Was this justified?
Clause 5
(g) The "adequate procedures" defence
is not available where the negligence was on the part of a senior
officer. Does this create a negative incentive on senior executives
to appoint lower level employees to be the responsible person
(or potentially disadvantage smaller companies where a senior
officer may only be only individual able to act as the responsible
person)?
Response to question 7.
1. Cl 5 will only be effective if it encourages
companies to develop systems to prevent the commission of bribery
offences by its employees/agents. I think in large companies this
aspect of clause 5 creates an incentive to appoint one or more
responsible officers. There are any number of permutations depending
on the size and structure of the company.
2. If a company wishes to find shelter under
the adequate procedure defence, it will need to show as part of
that defence that the appointment of lower level responsible officer(s)
is appropriate. If it does not appoint such a person, or if it
places the responsibility on a senior officer, it loses the potential
protection of that defence.
3. I am not sure this is a negative incentive
if by that is meant that it would somehow be better if the responsible
officer were a senior officer. It would be a sensible response
to a provision that is intended to ensure that we do have an effective
regime of corporate liability. As I have commented, I am not sure
it achieves that aim because of the requirement to identify this
person and then prove their negligence but taken alone I do not
see the unavailability of the adequate procedure defence where
the responsible officer is a senior officer as at all problematic.
4. It may be that smaller companies are
more at risk of corporate liability (as indeed they are under
the identification doctrine) but I don't think that is a matter
of unfairness. It is merely a reflection of practical issues in
enforcement against large companies.
June 2009
147 http://www.oecd.org/dataoecd/57/42/35937659.pdf
(para 148) Back
148
OECD above n 1. Back
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