Memorandum submitted by Herbert Smith
LLP (BB 49)
SUMMARY
1. This written submission is made by Herbert
Smith LLP. We are extremely grateful to the Joint Committee for
seeking the views of interested parties during their scrutiny
of the draft Bill and we welcome the Government's desire to modernise
and consolidate the Anti Bribery Legislation.
2. These comments are based on our experience
of advising clients for a number of years in relation to the systems
and controls needed to be put in place to reduce the risk of corrupt
conduct by employees and those acting on behalf of an organisation
as well as acting for clients who are the subject of SFO/police
investigations with respect to corrupt activity.
SUBMISSIONS
Clause 5—Failure of Commercial Organisations
to Prevent Bribery
3. Clause 5 (7) of the draft Bill extends
the definition of senior officer to manager. Our understanding
(which is consistent with the Law Commission's Final Report which
included a similar definition and which stated that the defence
did not apply to a director or their equivalent) is that a manager
for these purposes is to be the same as the definition used for
the directing mind and will concept. This is a concept which provides
that a company will only be criminally liable for an offence (for
which there is some mens rea element) where someone sufficiently
senior within the organisation would be guilty of the same offence.
Under the concept of directing of mind and will, only directors
or senior managers (usually taken to be no lower than two levels
below board level) are sufficiently senior within the organisation
such that their guilt should be attributed to the company.
4. The proposed definition in the Bill at
present (Clause 5 (5)) is that "the defence is not
available if the negligence referred to …. was wholly
or partly that of a senior officer ….. or a person purporting
to act in such a capacity." The definition in clause
5 (7) defines senior officer as "in relation to a
body corporate, means a director, manager, secretary or other
similar officer of the body corporate, and in relation to a partnership,
means a partner or any person who has control or management of
the business of the partnership."
5. The extension of senior officer to include
"manager" is causing some confusion as to whether
this applies to senior manager (utilising the directing mind and
will definition) or whether it extends to any manager (including
low level managers and/or staff having some managerial expertise).
Our working assumption has been that the intention of clause 5 is
to dis-apply the defence only in circumstances where the negligence
is due to that of a senior individual. We consider the legislation
could be clarified in this regard to avoid confusion, perhaps
a definition could be used for "manager" for example,
we note a statutory definition appears in the Corporate Manslaughter
and Corporate Homicide Act 2007, Section 1(4)(c). It states "senior
management…..means the persons who play significant roles
in—
(i) the making of decisions about how
the whole or a substantial part of its activities are to be managed
or organised, or
(ii) the actual managing or organising
of the whole or a substantial part of those activities."
We see no reason not to use that definition.
In what circumstances would the adequate procedures
defence apply?
6. There is a great deal of debate as to
what constitutes adequate procedures, or best practice etc. That
uncertainty means it will be difficult for a company to know whether
it has complied with the law. It is generally accepted that the
criminal law should be sufficiently certain so that people can
know what is prohibited. In the absence of that certainty, any
prosecution could infringe the ECHR. We also recognise that the
law needs to be adaptable and that a one size fits all approach
for all companies, public, private, English and overseas may not
be appropriate. We also consider that leaving this question to
a prosecutor and ultimately a jury may increase uncertainty. The
Money Laundering Regulations similarly require companies (and
others) to have relevant systems and controls to forestall money
laundering. To assist those required to comply, the provision
requires a court to take into account relevant guidance issued
by an appropriate body and approved by the Treasury. This has
proved very successful, with a number of different industry bodies
producing detailed guidance to assist compliance which has then
been approved. For example, the Joint Money Laundering Steering
Group, which is a representative body of a number of organisations,
has successfully promulgated guidance notes for the financial
services sector on what systems and controls are required in order
to prevent and reduce the risk from money laundering. The inclusion
of such a defence in the Bribery Act would allow the various trade
bodies to promulgate guidance as to the systems and controls which
are required in order to prevent and reduce the risk of engaging
in corrupt activity. This would promote and publicise best practice,
which would help the Bill met its aims. In addition this would
ease the burden considerably on organisations trying to comply
with the proposed legislation.
7. Regulation 45 (2) of the Money Laundering
Regulations 2007 specifies that "in deciding whether
a person has committed an offence under paragraph (1), the court
must consider whether he followed any relevant guidance which
was at the time—
(a) issued by a supervisory authority
or any other appropriate body;
(b) approved by the Treasury; and
(c) published in a manner approved
by the Treasury as suitable in their opinion to bring the guidance
to the attention of persons likely to be affected by it"
An "appropriate body" means any
body which regulates or is representative of any trade, profession,
business or employment carried on by the alleged defender.
We consider that the adequate procedures defence
in clause 5 (4) should provide protection where a company
can show that it has complied with guidance set by industry bodies
which has been approved by a relevant ministry.
Should the defence apply to the conduct of senior
management?
8. As you will see, the inclusion of the
defence in the Money Laundering Regulations 2007, provides a defence
to an organisation which can show that it had followed relevant
guidance. Putting aside the difficulties with identifying who
should be classed as a senior manager (supra) we are concerned
as to whether the dis-application of the adequate procedures defence
to the conduct of senior management is, as a matter of policy,
required and secondly whether it could in fact weaken the controls
firms have in place.
9. As regards the first issue; we fail to
see why public policy requires a more stringent regime to counter
corruption than it does to combat money laundering, which flows
from all crimes, and terrorist financing.
10. As regards the second issue; one of
the appropriate systems and controls which firms need to have
in place to prevent corrupt conduct is the involvement of senior
management, ie. tone from the top and senior management taking
direct responsibility for ensuring that their organisation complies
with requirements to have in place proper systems and controls
to prevent bribery. If an act of bribery occurred as a result
of the failure by senior management involved in these issues,
for example, to ensure that the organisation had adequate polices
in place then the defence in clause 5 (4) would not apply.
In which case the dis-application of the defence in clause 5 (5)
to the conduct of a senior officer would not be necessary. We
are concerned that providing that the adequate procedures defence
does not apply where the negligence was due in whole or in part
to that of a senior officer would mean that companies may design
their systems in such a way as to ensure that low level management
have responsibility for these issues in order to ensure that the
dis-application of the defence could not apply to them. This would
be an unfortunate and unintended consequence since, it is generally
accepted that it is important that senior management are involved.
Secondly, it is also likely that the defence would more frequently
apply in large companies where there is much more opportunity
to delegate than in small ones. The law has already encountered
difficulties in pursuing corporate manslaughter charges given
the difficulty of securing convictions of large companies leading
to a change in the law. We think it sensible to avoid such an
issue arising with new legislation. We would therefore propose
that consideration be given to not removing the availability of
the defence where senior management are involved.
Those who provide "services"
11. The offence of a commercial organisation
failing to prevent bribery extends to those persons performing
services for and on behalf of the organisation. This is further
defined at clause 6. The capacity in which "A" was performing
services for and on behalf of "C" does not matter and,
for example "A" may be "C's" employee, agent
or subsidiary. In practice, this could encapsulate a wide range
of persons, from small contractors to outsourced service providers.
The cost of ensuring compliance could be significant despite the
corruption risks being, in some cases, small. This reinforces
our view of the need for a safe harbour through approved industry
guidance. Secondly, we are concerned that the Bill does not contain
some of the defences in the FCPA, thereby making it more onerous.
Not many, if any, commentators consider the FCPA to be defective
or "soft" on corruption. For example, many large scale
projects undertaken overseas often involve two or more entities
through a joint venture entity. Where one holds more than 50%,
then clearly it has control over the ethical direction that the
joint venture entity takes. We are concerned, however, with the
situation in which a joint venture partner does not have a controlling
stake (ie. over 50%) in the joint venture entity. There is a risk,
given the current drafting of clause 5 of the Bill, that
the joint venture entity is performing services on their behalf.
However, where a joint venture partner cannot control the activities
of the joint venture entity, we do not consider it should be liable
for the acts of the joint venture entity. By comparison, the FCPA
provides, in the books and records provisions, that where an issuer
holds 50% or less of the voting power, it is only required to
proceed in good faith to use its influence, to the extent reasonable
under the circumstances, to cause such domestic or foreign firm
to devise and maintain a system of internal accounting controls
consistent with the provisions in the FCPA. This recognises that
where there is only limited control, only reasonable steps in
good faith have to be taken to reduce the risk of corruption in
a joint venture entity. We consider that such a provision would
be appropriate here and not left for guidance.
Bribery of Foreign Public Officials
12. In the Law Commission's final report
they proposed that a defence should apply where a person had a
reasonable belief that payment to an official was required or
permitted under local law. That has now been removed in the proposals
prepared by the Ministry of Justice.
13. Our own experience and that of clients
is that it can be difficult to get reliable local law advice about
whether a particular situation will be corrupt or not. Often that
advice is heavily caveated because of a dearth of authority on
what the legislation means in practice and is dependent on a number
of assumptions, some of which the person on the ground having
to make the decision will not know the answers to and will therefore
have to make a best guess based on the information at hand. We
fail to see why public policy should require that individual's
actions be criminalised and for the individual then to rely on
a prosecutor's discretion, on whether with hindsight, the public
interest requires a prosecution. For those reasons we consider
that the defence of "reasonable belief" should be retained.
Jurisdiction
14. The legislation adopts two different
tests as regards jurisdiction. In respect of clauses 1, 2 or
4 (where the relevant acts or omissions are committed outside
the United Kingdom) then the English and Welsh courts can take
jurisdiction over a body incorporated under the law of any part
of the United Kingdom. As regards clause 5 (the clause dealing
with failures by commercial organisations to prevent bribery),
this clause applies (irrespective of whether the acts or omissions
take place in England and Wales or elsewhere) to a body which
is incorporated under the law of England and Wales or Northern
Ireland or to any other body corporate which carries on a business
or part of a business in England, Wales or Northern Ireland.
15. It is not clear why two different tests
as regards jurisdiction should be adopted. This produces an anomaly,
where for example, a Scottish company incorporated in Scotland
but which does not do business in whole or in part in England
and Wales or Northern Ireland, could not be guilty of an offence
under clause 5, but could however be guilty of an offence under
clauses 1, 2 or 4, regardless of whether or not there is
any connection to England or Wales.
16. We also note that the offence under
clause 5 could apply to a French company which has an office
in London even if the act or omission constituting the act of
negligence takes place outside England, etc; A's acts also take
place outside England etc, and where these issues are wholly unconnected
to the business carried out by the London office. That is because
the definition of "relevant commercial organisation"
for s.5 (1) includes any body corporate which carries on
part of its business in England etc (s. 5 (7)(b)) but the
proposed legislation does not require that the relevant act (or
omission) has any connection to the business carried on by the
company in England, Wales or Northern Ireland (Section 7 (5)),
only to the corporate's business generally. These proposals extend
the jurisdiction beyond that enjoyed even by the US authorities
under the FCPA. We are not sure these consequences were intended
and would consider that in the situation outlined above it should
be a matter for the French courts to take jurisdiction over. We
would propose that this be remedied by making it clear that for
non UK companies, the person, A, who is providing services under
section 5(1)(a) for C is doing so for that part of C's business
which is carried on in England, Wales, or Northern Ireland, even
if A's acts took place outside the UK. This could be dealt with
by a small addition to section 5(7) or section 7(5).
June 2009
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