Additional Memorandum submitted by Serious
Fraud Office (BB 47)
JOINT COMMITTEE
ON THE
DRAFT BRIBERY
BILL
SUPPLEMENTARY QUESTIONS
TO THE
SERIOUS FRAUD
OFFICE
1. How many investigations and prosecutions,
if any, have been undermined by weaknesses associated with the
current law of bribery?
The SFO was given the lead role for investigating
overseas corruption in 2005. We can therefore only refer to cases
since then.
There have been three cases since 2005 where
the agency concept has been raised or where it has been suggested
that it stood in the way of securing a conviction.
Had the Bill as it currently stands been enacted:
— it would have enabled us to proceed in
each case for an offence under clause 1 or clause 4, subject
to the overriding need to obtain evidence that an advantage was
offered, agreed or paid.
— Clauses 5 and 6 might have
given the UK jurisdiction to investigate and prosecute (subject
to sufficient evidence) several of the other cases that were referred
to us. We consider that there were three cases where we certainly
would have proceeded against the main company and two others where
this would have been a distinct possibility.
2. Should the test of "negligence"
at clause 5 be replaced with a test of "gross negligence"?
Clause 5 strikes an appropriate balance
between the US approach and the current approach in this jurisdiction.
Under the US approach a corporate is liable if an individual member
of the corporate at whatever level does an act that they believe
to be for the benefit of the corporate. The approach in this jurisdiction
is to look at the controlling mind of the organisation. This means
that in prosecuting corruption the SFO needs to establish that
the corruption involved the participation of Board members of
the corporate or those close to the Board. This test is difficult
to justify for modern global corporations and would mean that
there would be few prosecutions of corporates for corruption.
The SFO takes the view that negligence is the
right test. It requires fault in the corporate. Gross negligence
would be a very difficult test to satisfy and would lead to many
questions about the meaning of "gross".
There is a defence relating to adequate procedures
here. It would not matter therefore if there is negligence or
gross negligence if there were adequate procedures.
3. You stated that it may be helpful for guidance
to be prepared in relation to the proposed offences. In brief:
(a) Should guidance be given an official status
(akin to approved guidance under the Money Laundering Regulations)?
The Money Laundering Regulations cover a completely
different situation. Nearly everyone collecting or receiving certain
sums of money by virtue of occupation or profession could potentially
be caught by Proceeds of Crime Act offences. In our view, bribery
does not involve, or potentially capture, the "innocent"
who take proper safeguards. Serious bribery, however, is generally
intended to obtain a business advantage and has the tacit approval
and encouragement of the company involved.
(b) Who should prepare guidance (ie Government,
prosecutors, trade associations, the private sector, or a combination)?
A combination of trade associations and the
private sector already prepare good guidance on proper compliance
programmes including anti-bribery elements. Companies are undoubtedly
in the best position to ensure that the enormous damage done is
reduced or eliminated, especially in the context of overseas trade.
There are always difficulties with official
guidance. For example, I am keen on the US Department of Justice's
Voluntary Disclosure model, but I am mindful that in the US there
is no consensus over the extent of Voluntary Disclosure. The DoJ
says that companies must report every compliance failure (on the
basis that it demonstrates a lack of control) but the companies
say that they will report only "material violations".
The SFO has a policy of engagement with corporates
and professional advisers. We have many discussions with them.
We have discussed what we would expect to see from the corporate
and how we might implement the legislation if it is enacted.
(c) In broad terms, what issues should be covered
by the guidance and in what level of detail?
Most business and trade guidance already states
the principles—that bribery is not acceptable or to be tolerated
within the business community—and suggests ways in which
it could be eliminated, including the due diligence that companies
should already be exercising when they employ foreign intermediaries
or agents.
I would want to see evidence of a robust compliance
tool kit to assess how successful the company has been in mitigating
risk including:
— a clear statement of an anti-corruption programme
fully and visibly supported at the highest levels in the company
(what is prohibited behaviour, etc)
— a clear and personalised reporting structure
from the CEO down to all managers
— principles that are applicable regardless
of local laws or culture
— individual accountability
— a policy on gifts and hospitality and
facilitation payments
— a policy on outside advisors/third parties,
including vetting and due diligence
— training—to enable staff to comment
and input
— robust maintenance—auditing/updating/evaluation/actions.
This should encourage self-reporting because
companies should be able to self-evaluate and come forward (in
confidence) with details of what they have found.
At the very least it would be a strong factor
to take into account in mitigation should the wrongdoing be so
serious that it must be prosecuted. In cases where the company
has taken appropriate remedial steps to ensure it does not happen
again, and put right any loss (by accepting a civil recovery order
and monitoring the position going forward) then, provided the
offending is not too serious, there are fairly compelling grounds
not to prosecute.
Small and medium enterprises may not have dedicated
compliance officers but they could comply by ensuring that all
their employees and intermediaries are aware of the company's
anti-bribery stance and by encouraging feedback on it. These companies
ought to be doing due diligence checks in any event, especially
on the third parties they employ. Although the SFO is unlikely
to deal with many small and medium sized enterprises, we shall
be sensitive to the particular needs and constraints of this important
sector. In particular we shall take into account the limited resource
likely to be available.
A company which does not come forward when it
uncovers wrongdoing faces a difficult hurdle because the public
cannot be confident that that the remedial action has taken place.
and that it will not happen again. It may also be indicative of
a company that is not prepared to live by the standards required
by modern society.
(d) What status should the protocols be given
(ie purely informal, capable of being used as evidence at court,
or binding)? If you consider that guidance should either be capable
of being used as evidence or binding, would you welcome an additional
clause being added to the draft Bill to make this clear?
Guidance should/can only be informal because
each case will depend upon its own facts and circumstances.
(e) Are separate guides needed for different sectors
of industry or for small domestic firms in contrast to large exporters?
There could be a shorter guide for smaller companies,
based on larger corporate guidance. Even small domestic companies
are unlikely to completely escape using intermediaries and agents.
Indeed, the smaller the company, the more likely they are to rely
on them.
4. The Director of the Serious Fraud Office
expressed reservations about prosecutors being asked to advise
businesses in relation to prospective transactions, other than
in some limited circumstances:
(a) What are those limited circumstances?
The SFO has a dedicated team ("Outreach")
to advise and help business. On the wider front this team engages
with business stakeholders to understand their needs and problems
and to discuss what the SFO can do to help. It also conducts specific,
educative campaigns on issues such as the risks of bribery and
how to prevent it. As part of this work, we would clearly listen
sympathetically to potential problem areas and how to mitigate
them. However it can only give advice on prospective transactions
that throw up points of general principle. We would be reluctant
to give formal approval to the agreement of specific contracts
or the use of specific intermediaries because we may well not
have sufficient information.
The circumstances where we are likely to be
able to give specific assurances to corporates follow representations
made to us by corporates as part of our engagement programme.
We were told, for example, that a corporate that is in the process
of acquiring another group might discover problems relating to
corruption or fraud in that group. The acquiring corporate might
well though wish to complete the transaction for commercial reasons
and then introduce a better corporate culture. We were asked if
we would be prepared to give assurances about our approach once
the fraud or corruption is reported to us so that the acquiring
corporate has reasonable certainty about the consequences of the
takeover.
The SFO has been sympathetic to this request
because it will help legitimise commercial activity. The SFO has
said it is content in principle to adopt such an approach. The
details still need to be worked out.
It should be noted though that this concerns
the SFO's approach to transactions that have already taken place
and are now being uncovered rather than transactions that have
not yet taken place.
(b) Would it be acceptable for an independent
body or commission to provide advice of this kind?
Industry guidelines would be better. The difficulty
with a more formal body is that the corporate would want binding
advice from it. Furthermore there would be a natural temptation
to seek advice on each transaction so as to show compliance with
adequate procedure. This would be unmanageable.
5. Does the draft Bill clearly and adequately
address the circumstances in which a legal person can be liable
for the actions of its subsidiaries, joint venture vehicles, or
syndicates (including under clause 5(1) which adopts a test of
whether services are being performed "on behalf of"
the company and "in connection with [the company's] business"?
The draft Bill makes it plain that it is not
intended to increase subsidiary, joint venture, or syndicate liability
as such. This will have to wait for the Law Commission's wider
corporate liability review. Bribery nearly always involves intermediaries
or third parties acting on behalf of a company and, as subsidiaries
are often used in this way, it is not unreasonable to extend liability
on a "services performed" basis and in connection with
the company business which will always be assessed on a factual
basis.
We still have to prove that a bribe has been
offered or received by the subsidiary, so it is not unreasonable
to ask for whose benefit was it offered or received, and in what
context.
6. Should the jurisdictional reach of clauses
1 to 5 be extended to cover companies incorporated in
Overseas Territories (OT), Crown Dependencies (CD) and (subject
to your views outlined above) subsidiaries of UK incorporated
companies?
This is a matter for HMG as it involves difficult
extra territorial reach issues that would exceed the Bill's current
jurisdictional emphasis. However, if a company incorporated in
the OT or CD carries on a business (or part) in England, Wales
or Northern Ireland, they would be caught by s5.
June 2009
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