Memorandum by Lockheed Martin UK (BB 28)
RESPONSE OF
LOCKHEED MARTIN
UK LTD. (LOCKHEED
MARTIN) TO
THE SUPPLEMENTARY
QUESTIONS FROM
THE JOINT
PARLIAMENTARY COMMITTEE
ON THE
DRAFT BRIBERY
BILL
This letter has been written to give general
comments on the provisions in the Draft Bribery Bill and to give
the Committee further detail on points raised during my testimony
on 3 June 2009.
Lockheed Martin is providing this written response
in the hope of assisting the UK Government in drafting a robust
and readily understandable law to prevent corruption. The elimination
of bribery is a goal that will be of benefit to all who want to
conduct business in a transparent and ethical manner.
Given the corrosive effect that corruption has
on business, Lockheed Martin supports any reform of the legislation
that has the effect of clarifying and strengthening the law and
thereby preventing corruption. As well as answering the specific
supplementary questions posed in writing by the Committee, we
have comments on those provisions in the Bill that are unclear
and which seem likely to create uncertainty. We also have comments
on the formulation of the corporate offence and whether in this
regard the Bill contains both a clear standard and the attribution
of fault to the appropriate management level within a business.
Set out below are the answers to the Supplementary questions enclosed
with your letter of 10 June 2008.
Supplementary Question 1—Please could you
summarise the impact that the US Foreign Corrupt Practices Act
(FCPA) has had on your business
After the FCPA was enacted the predecessor companies
which are now part of Lockheed Martin introduced codes of conduct
to ensure compliance with the FCPA. A culture of corporate compliance
is deeply engrained in Lockheed Martin. The development of this
culture of business probity has continued since the group's establishment
as the Lockheed Martin Corporation in 1995. Lockheed Martin is
part of a very international business group and while our culture
of compliance is designed to ensure compliance with the FCPA it
also exists independently of these requirements. Lockheed Martin
trains its employees annually to ensure awareness of and compliance
with Lockheed Martin's anti-corruption policy, procedures and
its Code of Ethics and Business Conduct (the Code). The company
reviews these policies and procedures and the Code as a matter
of routine in order to maintain the strength of the provisions
and to keep them up to date with any legislative or regulatory
changes. Lockheed Martin employees work to the standards which
are mandated in its anti-corruption policies and procedures and
Code. These require those working for Lockheed Martin to conduct
business to the highest legal and ethical standard. The Lockheed
Martin anti-corruption policies, procedures and Code have been
developed expressly to meet the commercial and ethical demands
and challenges which Lockheed Martin has to deal with in the course
of its operations around the world. Every business needs to develop
its own policies, procedures and code that fit the needs of that
business, taking into account the size of the business, its goals
and strategy and the risks to which the business is exposed. These
considerations are particularly relevant for companies operating
in an international context.
Supplementary Question 2—What impact, if
any, would the draft Bribery Bill have on your organisation's
systems and business practices were it to be made law?
The enactment of the Bill would not have any
significant impact on the way Lockheed Martin does business. Lockheed
Martin already adheres to high anti-corruption standards and has
already on occasion walked away from substantial pieces of business
where demands were made which, if met, would have breached the
Lockheed Martin Code. Lockheed Martin has also not used the services
of certain third party business intermediaries out of concern
over their potential failure to comply with Lockheed Martin's
anti-corruption policies and Code. As the Bribery Bill moves towards
legislation, its provisions will be taken into account when the
Lockheed Martin anti-corruption policies and procedures and its
Code are subject to their regular review.
Supplementary Question 3—How workable, from
your company's perspective, is the "legitimately due"
test under clause 4(3)(b) of the draft Bill?
Lockheed Martin has concern over the terms of
the defence available to the charge of bribing a foreign public
official. Clause 4(3)(b) provides that no bribe takes place if
the advantage offered is "legitimately due", which is
defined as being "permitted or required" by local law.
This means firstly that a judge during a criminal trial will have
to determine what exactly the foreign law is in order to resolve
the guilt or innocence of the person accused of this offence.
Secondly, and of perhaps more concern, this formula allows an
individual to be convicted of a criminal offence without ever
having intended to bribe at all. The Law Commission had proposed
that a defence be included which provides that a person will not
be guilty of the offence if that person had a reasonable belief
that the payment to the official is required or permitted under
local law. Lockheed Martin would support an amendment to the Bill
to incorporate this "reasonable belief" defence into
clause 4 to ensure that only those who intended to commit
a crime are convicted of a crime.
Supplementary Question 4—What is your view
on where the burden of proof should lie for the new corporate
offence provided for in clause 5 and 6 of the draft
Bill; should it matter for the prosecution to prove negligence,
or for the defence to prove adequate procedures or due diligence?
It is not possible to answer a question about
where the burden of proof should lie in the new corporate offence
without first commenting on the offence itself. The proposed corporate
criminal offence of negligence appears to import into the criminal
law concepts which are more properly applicable to civil proceedings.
We note in this regard that, in contrast, the new Corporate Manslaughter
and Corporate Homicide Act refers to the higher standard of "gross
breach of duty of care", as opposed to negligence.
One essential element of negligence is the existence
of a duty of care. It is not clear from the Bill to whom the corporate
entity would owe a duty of care. Also, it is not clear from the
Bill what standard of proof the prosecution would have to meet
to secure a conviction for negligence. It could be either the
usual higher standard required in criminal cases or the standard
usually required in cases involving allegations of negligence
(those being cases in the civil courts) which is the "balance
of probabilities". If it is envisaged that the lower, civil
standard for negligence should apply then the burden should rest
purely on the prosecution to prove the offence. This is particularly
important since it would be possible for a negligence conviction
to be made without any actual conviction for an underlying criminal
act. If the burden is not placed on the prosecution but is placed
instead on the corporate entity to prove a defence of adequate
procedures or due diligence, then this would create a quasi-strict
liability offence, a situation which puts even greater importance
on it being clearly prescribed how a business will know in practice
that it has in place "adequate procedures". This problem
is discussed further in the sections on guidance below.
Supplementary Question 5—Are there any specific
changes that should be made to the draft Bill that you have not
had an opportunity to identify before now?
GENERAL ABSTRACT
CONDITIONS AT
THE HEART
OF THE
GENERAL OFFENCE
From a business standpoint, what is required
of a law is that it be clear, easily understood and consistently
enforced so that those businesses which want to comply with the
law are able to do so. In this regard, Lockheed Martin notes that
the general offence of giving a bribe can be summarised from the
Bill as giving an advantage to another person intending that the
recipient or a third party should perform a function improperly,
where "improperly" is defined in clause 3(6) to mean
"in breach of a relevant expectation". The meaning of
"relevant expectation" is then defined by reference
to three conditions:
(i) Condition A is that a person performing the
function or activity is expected to perform it in good faith;
(ii) Condition B is that a person performing
the function or activity is expected to perform it impartially;
(iii) Condition C is that a person performing
the function or activity is in a position of trust by virtue of
performing it.
DIFFICULTY OF
UNDERSTANDING LEGAL
MEANING OF
"GOOD FAITH"
IN AN
EVERYDAY BUSINESS
CONTEXT
Lockheed Martin has reservations about the practical
application of the three concepts in clause 3 of the Bill,
since their inclusion does not tend towards making this law clear,
fair and predictable, particularly for those who will have to
observe it in the everyday context of business transactions. The
concept of "good faith", for example, has a common sense
meaning but is here being given a particular legal significance
which a lay person would not be in a position fully to understand
or to apply to an everyday business context. As a legal term,
"good faith" has hitherto been confined chiefly to insurance
contracts and the law dealing with bills of exchange. If it is
intended that the meaning of "good faith" is to be decided
by juries rather than through any recourse to civil law concepts,
it still means that the meaning will be derived from case law,
so in order for those undertaking business transactions to have
a clear understanding of what the concept means legally (or for
that matter what the other two concepts mean in terms of this
proposed law) they will have to seek legal advice which will lack
certainty until there have been judicial decisions dealing with
the relevant provisions.
EVALUATING THREE
CONDITIONS USING
A "REASONABLE
PERSON" STANDARD
GIVES POTENTIAL
FOR A
CONVICTION WITHOUT
ACTUAL INTENT
The draft Bill appears to require those in business
to make an evaluation of each proposed transaction against these
three concepts which the Bill has invested with legal significance.
The same problem arises when the proposed law enjoins a person
not to intend making a payment to another person so that other
person acts in breach of trust. The concept of trust is very broad;
it is very difficult to know in a commercial context what obligations
of trust may be operating on a counterparty to a particular transaction
and it is not practical for an employee or agent of a company
to make thorough enquiries to satisfy him or herself on this point.
The standard of expectation which the draft Bill adopts in clause
3(8) is that of a reasonable person. The possibility therefore
presents itself that "trusts" may be anticipated in
a trial by the "reasonable person" which were not anticipated
by the person accused of the offence, with the result that the
person could be criminally convicted without actually intending
to bribe anyone. Since what business seeks from the law is certainty
and clarity, a law that relies upon concepts such as "good
faith" and "breach of trust" which cannot be properly
understood without legal advice surely falls short in this respect.
The concepts contained within the three Conditions
are matters which would benefit from being the subject of guidance.
It would be better if the law was drafted in such a way that the
meaning of the law is clear and easily understood but if that
is not possible then guidance should be provided. We again refer
to the sections below relating to guidance.
CORPORATE OFFENCE
SHOULD BE
TIGHTENED SO
THERE CAN
BE NO
CONVICTION WHEN
THE CRIMINAL
ACTION IS
OUTSIDE OF
THE COMPANY'S
CONTROL
Lockheed Martin recognises that companies must
take responsibility for preventing bribery on their behalf and
welcomes measures which make illegal any wilful attempt by a company
to gain an unfair advantage through the payment of bribes. It
is generally not possible under the criminal law of England or
Wales to secure a conviction of a company of a crime except for
some limited exceptions where the company is run by an owner manager.
This weakness in the criminal law has resulted in specific laws
being passed to deal with specific problems of corporate criminality,
such as the law dealing with corporate manslaughter, and the whole
question of corporate criminal responsibility is a matter which
is due to be considered by the Law Commission. Under the provisions
in clause 5 of the Draft Bill, a company may be found criminally
liable when a responsible person or persons employed by or connected
with that company negligently fails to prevent bribery in connection
with the company's business. It appears from the wording of the
Bill that a business could be convicted of a criminal offence
if the payer of the bribe is, using the language of the Bill,
connected with the company's business. This very broad definition
means that a company could be convicted of a crime as a result
of the actions of, for example, a joint venture partner or contractor
when the company has no knowledge of those actions nor control
over them. We would encourage the Committee to recommend that
the corporate offence is tightened to exclude this possibility.
DEFINITION OF
"SENIOR OFFICER"
WHICH INCLUDES
"MANAGERS" TOO
BROAD
Even if a board of directors ensures that adequate
procedures are in place, the defence is lost if there is a negligent
failure by a senior officer. The term "senior officer"
appears to have been given very wide definition. This means that
the defence may be lost and a company may be found criminally
liable for the negligence of one of its "managers",
as "managers" has been introduced into the definition
of a senior officer. Corporate criminal liability has traditionally
been based on the decisions of directors as opposed to managers.
It is not clear who will be included in the definition of manager.
Does it extend to an individual who has a single person reporting
to him or her, which could be limited to his or her secretary?
The answer to this and other questions is not to be found in the
wording of the Bill.
The definition of fault for the corporate offence
needs to be focused at the appropriate level within the company,
which is at the level which is responsible for the culture of
the company. It is sometimes asserted that it is appropriate to
punish a company, as opposed to an individual, when there is a
need to change the culture of the company. Taking on board that
principle the corporate offence should focus within the company
at the management level that is responsible for the formation
of the company's culture. This responsibility may only be found
at the level of the board or, at the very least, of senior executive
management. As the Bill stands a company could, like Lockheed
Martin, have very thorough compliance procedures and training
and yet still be convicted of a crime as a result of the unilateral
and unauthorised actions of a junior manager with very limited
management responsibility even though those actions are entirely
contrary to the policies, procedures and culture of the company.
POTENTIAL UNFAIRNESS
OF A
STRICT LIABILITY
CORPORATE OFFENCE
The possibility of a company being convicted
for negligence by persons connected to it but over which the company
had no control also creates a quasi-strict liability offence since
the "adequate procedures" which would constitute the
only defence will be of no avail when the bribe was paid by a
person to whom those procedures do not apply. This gives rise
to the possibility of a business being convicted of a bribery
offence even when its directors and senior managers had no intent
and indeed had taken thorough measures to prevent bribery. It
should be borne in mind that a criminal conviction will usually
be catastrophic. Any business convicted of a criminal offence
which relies on public contracts in, for example, the defence
or construction sector, will under the procurement rules be excluded
from the tendering process.
LACK OF
GUIDANCE OVER
WHAT CONSTITUTES
"ADEQUATE PROCEDURES"
As I have already noted, a defence is provided
in the Bill if the company can prove that it had "adequate
procedures" to prevent offences. As it currently stands,
this defence is too vague. Lockheed Martin has been an industry
leader in strictly enforcing its anti-corruption policies, procedures
and Code. It conducts annual compliance training for all of its
employees engaged in international business and annual ethics
training for all of its international consultants. We are proud
of our ethics and compliance record, but there is still no way
of knowing from this Bill whether our policies, procedures, Code
and training in this area would satisfy the proposed "adequate
procedures" standard. There is no guidance in the Bill for
any company to know whether its internal code, training and other
procedures are "adequate" for this defence to apply,
and if left in its current form companies would instead have to
await the first prosecutions under the new law to see what standard
constitutes a valid defence to the corporate negligence offence
proposed in the Bill. We again refer to the sections below relating
to guidance.
ANY DUE
DILIGENCE DEFENCE
NEEDS TO
BE CLEARLY
DEFINED WHILE
ALSO BE
FLEXIBLE ENOUGH
FOR DIFFERENT-SIZED
COMPANIES
Businesses operating internationally have to
comply with sometimes conflicting requirements. What could be
required in one country might be illegal in another, because,
by way of example, of privacy laws or data protection. In the
United States it is expected that a company's procedures will
include provisions to receive anonymous information about wrongdoing
within the company (sometimes called, "whistle blowing"),
whereas in France a business which reacts to an anonymous message
relating to an employee of a business in France would be in breach
of French law. There has been some discussion of the defence being
broadened so that a company will not be criminally liable for
the payment of a bribe in connection with its business if it has
in place adequate procedures and/or proper due diligence has been
undertaken. While a broader defence would be welcome, the inclusion
of reference to due diligence in such a defence would still require
clear advice and guidance, preferably in the Bill itself, to allow
companies to understand the nature and the extent of the due diligence
that is expected by the law. It should also be borne in mind that
due diligence, particularly across different countries, is expensive
and it would need to be clear whether the level of due diligence
expected from a small or medium-sized business is the same as
that expected from a large multi-national corporation. Adequacy
in the context of this defence may have different meanings for
different companies and may be very dependent on the risks to
which the business is exposed, and any guidance would need to
make this clear.
GUIDANCE SHOULD
PREFERABLY BE
CONTAINED IN
THE TEXT
OF THE
STATUTE
The provision of separate guidance and advice
is in many ways a poor substitute for the production of a law
that is drafted so that its provisions are easily understood and
are clear and certain. If guidance and advice is to be provided
outside of the text of the law itself, there are in our experience
three broad ways in which this might be done.
DIFFICULTY OF
HAVING GUIDANCE
IN THE
FORM OF
OPINIONS FROM
A GOVERNMENT
AGENCY
The first model for guidance to be provided
is through opinions from a government agency. In the United States
there is a system in place which allows companies to make requests
for an opinion from the Department of Justice following specific
requests from companies as to whether a particular proposed transaction
or set of facts would be in compliance with the Foreign Corrupt
Practices Act (FCPA). This has been of great value in, for example,
mergers, where the other company might be a business with an uncertain
history. It is unclear whether such a system could operate within
the framework proposed in the Bill given that it is intended that
a number of different institutions will be involved in the prosecution
of offences contained within the Bribery Bill. The following are
named in the Bill:
The Director of Public Prosecutions
The Director of the Serious Fraud Office
The Director of Revenue and Customs Prosecutions
The Director of Public Prosecutions for Northern
Ireland
In addition to the problem of multiple agencies
there may also be budgetary constraints on this system being instituted
in the UK.
GUIDANCE NEEDS
TO HAVE
FORMAL STATUS
IN ORDER
TO INFLUENCE
THE DECISION
WHETHER TO
PROSECUTE OR
THE OUTCOME
OF CRIMINAL
TRIALS
The second method is for guidance and advice
to be provided by a statutory body. The analogy here would be
the guidance on health and safety provided by the Health and Safety
Executive.
The third method is for guidance to be provided
by a trade body in consultation with government. Guidance in connection
with the anti-money laundering legislation, for example, is currently
provided by the JMLSG (the Joint Money Laundering Steering Group),
which is an association of insurers and financial institutions.
It produces guidance notes, in consultation with both the Treasury
and the Home Office, for use by financial institutions. The guidance
notes contain detailed guidance as to the internal control, policy
and procedures which institutions need to put into place to ensure
compliance with the anti-money laundering laws and regulations.
Lockheed Martin is not in a position to say
which of these methods is likely to be the most effective, but
if the UK government decides to provide advice or guidance which
is external to the text of the statute then the Bill ought to
be amended so that guidance or advice has a formal status which
can be recognised by prosecuting bodies and the courts. It is
important that any guidance on the meaning of the proposed "adequate
procedures" defence be available to companies in advance
of the law coming into force and before the first cases are prosecuted.
INTERNATIONAL AGREEMENT
AS TO
STANDARDS
The suggested questions sent to me in advance
of the Committee hearing on 3 June asked at question 6 whether
there should be international agreement of any guidance and advice
which may be provided in support of the Draft Bill. There are
clear and obvious advantages to multi-national businesses if bribery
laws adhere to a common international standard and Lockheed Martin
would support efforts on the part of the Government to ensure
that standards are commonly held across different jurisdictions.
Supplementary Question 6—Is there any further
information that you wish to supply in connection with your appearance
on 3 June?
I shall here add some comments to supplement
my answers to questions asked by the Committee during my appearance
on 3 June.
LOCKHEED MARTIN'S
RECORD
At the committee hearing I was asked about events
that happened over thirty years ago involving a predecessor company
to Lockheed Martin Corporation. In my direct knowledge, I have
never known Lockheed Martin Corporation to have paid a bribe nor
has Lockheed Martin UK ever paid a bribe or been the subject of
any bribery-related investigation. A predecessor company of Lockheed
Martin Corporation paid fines to settle criminal and civil claims.
DE MINIMIS
PROVISIONS, CORPORATE
HOSPITALITY AND
FACILITATION PAYMENTS
The questions of a de minimis provision
and the status of corporate hospitality under the draft Bill were
raised by the Committee. I understand that the UK Government expects
that a de minimis level will be applied by way of the exercise
of prosecutorial discretion. As a general rule, the certainty
which companies like Lockheed Martin seek in the law is not assisted
by a policy of non-enforcement of particular provisions through
the exercise of prosecutorial discretion. If prosecutors are able
to determine how they will exercise their discretion then it should
be possible to encapsulate that discretion into words such as
a de minimis provision which could be included within the
law itself.
Facilitation payments and corporate hospitality
are not areas of great concern for Lockheed Martin as the standard
which the company maintains through its anti-corruption policies,
procedures and the Code mean that any provisions which are included
are unlikely to result in Lockheed Martin having to revise significantly
these policies, procedures and Code. As the Bill passes into law,
whatever provisions are included would be considered as part of
Lockheed Martin's regular review of its internal policies and
procedures.
DISCUSSION OF
COMPLIANCE BETWEEN
US DEFENCE COMPANIES
During the Committee meeting I was asked whether
there is any collaboration between US companies in the defence
sector. Although Lockheed Martin sets its own standards of internal
legal compliance and practice it does collaborate with other US
Defence businesses in discussions as to best practices in relation
to codes of conduct and associated practices and procedures. These
discussions are done through the Defense Industry Initiative on
Business Ethics and Conduct (DII), a voluntary, private, non-partisan,
non-profit organisation of responsible US defence companies which
are committed to conducting all business affairs at the highest
ethical level and in compliance with the law.
COMPETITIVENESS
Another point raised was whether the FCPA means
that US companies operate under a competitive disadvantage since
they are governed by tighter regulation. While we are not in position
to speak for other companies, it should be borne in mind that
most international corporations doing business with or in the
United States will be subject to the provisions of the FCPA and
so will seek to maintain internal rules and procedures which do
not place them in breach of the FCPA. We at Lockheed Martin agree
with the remark of Baroness Whittaker during the Committee meeting
that to secure a contract through bribery means that the contract
was not won on the merits of the product and that company will
consequently have less incentive to improve its product, with
the result that the product is poorer and the company less competitive
in the long term. We do not believe that Lockheed Martin's competitiveness
will be impaired by this proposed legislation. On the contrary,
by enforcing a standard to which Lockheed Martin already adheres,
we believe that the company's competitiveness will be enhanced
by this legislation.
EFFECTIVENESS OF
UK COMPARED WITH
US ENFORCEMENT
A question was asked about the effectiveness
of US enforcement in comparison with UK enforcement, in particular
in the context of the FCPA. Information can be found using the
link to the US Department of Justice Website http://www.usdoj.gov/criminal/fraud/fcpa/.
A good place to find out reports of enforcement action in relation
to the FCPA is at http://fcpablog.blogspot.com/.
It is our understanding that a report has been
prepared by a former US prosecutor, Ms De Grazia, in which she
reportedly compared the effectiveness of US enforcement authorities
with the SFO. We only know of the report through press reports
but understand from those reports that copies of the De Grazia
report have been made available to UK government agencies including
the SFO.
CONCLUSION
Because it is important that the UK has a strong,
clear and consistently enforced anti-bribery law, we would strongly
encourage the Joint Committee to recommend that the Draft Bill
be amended to address the areas of difficulty discussed above.
Lockheed Martin fully supports the efforts of the UK government
to strengthen the law on bribery and hopes that its evidence to
the Committee, together with that of others, will ensure that
the final law will provide a clear and practical legal framework
so that all those in business who want to conduct business in
a fair and ethical manner are able to do so confident that they
comply with the UK laws that prohibit bribery.
June 2009
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