Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 20 MAY 2009
MR COLIN
NICHOLLS QC, PROFESSOR
CELIA WELLS
AND PROFESSOR
BOB SULLIVAN
Q100 Chairman: Professor Sullivan
wanted to say something.
Professor Sullivan: Only that
the previous Bill did make an attempt to differentiate between
bad and good hospitality, as it were, and it was an enormously
complex provision which would have led to very speculative judgments
on particular forms of going out. I think this current version
of the Bill is well advised not to try and pin that down, and
what Mr Nicholls says about codes of conduct is very much in point.
Q101 Baroness Whitaker: I absolutely
understand that, but not even an Approved Code of Practice which
has legal status, very much as Mr Nicholls has described, in that
if you do not go by it you have to prove that you have met the
objective of the law in some other way? You can have a code with
legal status like the Highway Code.
Mr Nicholls: You can have a code
with a disciplinary status within a profession, for example, but
the trouble with a code with legal status is that the code varies
according to the situations and the industry, or whatever it is,
in which you are involved. One of the great problems in all of
this is for example adequate procedures and all the rest of it,
when we come to the corporate area, in that so many issues in
this Bill are case specific and to try to have, shall we say,
a recognised statutory code may be difficult.
Q102 Lord Thomas of Gresford: If
I may follow that point up. Of course a code of conduct in one
industry, as you have said, may differ from a code of conduct
in another industry, they are dealing with different things, but
there is no organisation in this country, no mechanism for testing
whether your code is acceptable. The Ministry of Defence may have
one code, a large company may have a different code which is more
generous and allows greater hospitality to be received, but there
is no way of testing that, and it is clearly not a defence to
the offences set out in this Bill that you have gone by the corporate
code of hospitality, is it?
Mr Nicholls: I think this is one
of the issues in which the Director of the Serious Fraud Office
may be able to assist because the Serious Fraud Office is now
entering into discussion, for example, with companies on fraud
and particularly corruption situations. Whether they are all ex
post facto or not I am not entirely sure, but that may be
somewhere where he is able to have particular input. All that
is troubling me at the present moment, and of course Lord Thomas
knows I was not at that particular meeting in Hong Kong recently,
and I am sorry I was not, but the question is whether it is practical
here as opposed to in Hong Kong.
Q103 Lord Sheikh: My business is
insurance and of course a number of insurance companies back various
events where brokers and clients are invited. My concern is how
do you decide whether what is being offered or what is being accepted
is ethical? Should we perhaps be issuing some guidelines as to
the acceptability on what is right and what is not right because
I can see problems relating to insurance and financial services
and other businesses as well where hospitality is very much a
done thing. I get invited to Wimbledon and I got invited to Cornhill
cricket when it was there. This is my slight concern.
Mr Nicholls: Again, I would be
surprised if the insurance industry does not have a code of conduct
which deals with this situation. If it does not, then obviously
it is time for it to consider doing so, but that really is the
way in which I would seek to answer that. Another thing that is
very important is of course that hospitality should be recorded,
again back into that Australian Criminal Code, when it comes to
certain matters. Facilitation payments is a classic illustration.
If you want to have facilitation payment as a defence, for example,
then the fact that it was recorded as soon as practicable afterwards
may be part of a defence.
Q104 Lord Thomas of Gresford: But
recorded as a facilitation payment. The American experience is
that if they cannot get somebody for a straight bribe they will
look inside the company's accounts to see how a particular payment
has been recorded and if it is not recorded as a facilitation
payment but as something else, then it clearly is suspicious and
demands investigation.
Mr Nicholls: The Australian Criminal
Code actually sets it out in detail exactly how the reporting
should take place.
Q105 Lord Anderson of Swansea: Recording
not just hospitality but gifts. In the Middle East when you visit
a senior official there would be an exchange of gifts and that
is part of the local culture. You cannot disregard that. It would
be considered an insult if you were not to respond in kind.
Mr Nicholls: I know that the Ministry
of Defence has very specific rules dealing with what you can accept,
what value, and so on.
Lord Anderson of Swansea: For officials.
Q106 Chairman: I want to go on please
to question four. I know that the draft Bill does rely on the
maintenance of other legislation, at least perhaps the one about
honours, but are there gaps where other legislation does not cover
the field? There is a particular problem about competition between
two companies where the chairmen or the senior officials are in
a position to be influenced by perhaps unacceptable gifts or something
and the legislation at the moment is relying on the Competition
Act to look at that. Would you like to comment on that?
Mr Nicholls: I think the Law Commission
on the first occasion referred to the issue of competition law
and really considered that it was appropriate that it should be
dealt with as a separate topic. Obviously certain competition
issues will come within the general bribery provisions, that is
bound to happen, and indeed may be in the foreign public official
provisions, but again, my personal view, particularly at this
present moment, is that as the remit for this Bribery Bill has
been limited in a way in which the first consultation process
was not, competition issues really should be a matter for competition
law, and particularly the Enterprise Act. As far as gaps are concerned,
it also might be said that this Bill does not deal with the sale
of offices, honours abuses and election offences and the like,
and so it could be said that the Bill leaves a gap there. Some
of the offences arising in those situations of course come within
the general bribery provisions, but certainly the most recent
view has been that all of those matters should be dealt with separately
and hived off. If one looks at the corruption laws of most other
countries, one finds in a corruption statute that you get the
general offences and then you get a whole series of specific offences
dealing with people in particular positions, et cetera, et cetera,
et cetera. What we have here is a Bribery Bill which deals with
general offences, and one specific matter, foreign public officials;
all the rest have been left out at the moment. That seems to me,
at the moment anyway, as the only practical way of dealing with
it because we are now 35 years since Lord Salmon recommended a
reform of corruption law and we are nearly 12 years since the
first Law Commission considered the matter, and I do not think
I need to say any more.
Q107 Chairman: Would the two of you
like to comment on this? Professor Wells, do you want to have
a go?
Professor Wells: No, I do not
think there are gaps. I think it creates generic offences. For
other specific offences there will undoubtedly be overlaps, but
that is a different point than whether there are gaps. I personally
do not think there are gaps other than in terms of the corporate
provision but I will deal with that when we come to that.
Professor Sullivan: I think the
foreign officials provision is to some extent an anti-competitive
provision anyway because, as Mr Nicholls pointed out, it says
categorically that payments to produce business are illegal, without
qualifying it, so in a sense that is in the spirit of anti-competitive
provisions and it is in the Bill.
Q108 Linda Gilroy: What about the
law that currently deals with issues in the sporting field of
bungs for fixing matches and also trying to deal with individual
sportspersons' performance in a particular way; is that likely
to be caught through the generic offences that are there?
Professor Sullivan: It would often
be forms of fraud and theft more directly, I think, depending
on the specifics that you have in mind. Payments of bungs to throw
a match would be straightforward offences of dishonesty.
Q109 Earl of Onslow: Presumably if
you give a bung to a football agent to give football club A priority
over football club B for a monetary consideration, that must be
criminal as this Bill has defined it?
Professor Sullivan: Yes.
Q110 Linda Gilroy: And also bribery
is becoming more complicated with the interface with gambling
if people are actually paid to either fix a match in a particular
way or for a goal to happen within the first 30 minutes or whatever.
Professor Sullivan: I think that
is cognate but distinct from corruption. A bung to influence a
business decision is at the heart of corrupt practice but throwing
a match is deceptive; pretending you are playing for real and
you are not is a distinctive wrong.
Q111 Linda Gilroy: But if you get
a reward for altering your performance surely that is bribery?
Professor Sullivan: It can be
but the actual betting coups and whatever are a different species
of wrong-doing.
Chairman: Can we go on to what happens
overseas. There are two parts to this. There are the provisions
in clause 4 and the question about what is required or permitted
under foreign law, which we have already discussed I think with
others, and it apparently has to be something that is completely
legitimate and a matter of legislation rather than practice overseas,
and then we get on to the other clause 5 offence where you have
got to have adequate procedures. Lord Onslow?
Lord Goodhart: Lord Chairman, I am already
over my time for moving on and I wondered whether it would be
possible to take question six now which is the one I am particularly
interested in?
Chairman: I think we can cope with question
six when we get to it. I am sorry if you have got to go.
Lord Goodhart: I am extremely reluctant
to go. I shall stay here but I may be causing difficulties at
the other end because I have got another bill committee which
started at 11 and I would have thought it might be ...
Chairman: We must let you get to it.
What about our witnesses on the two questions?
Linda Gilroy: Could I support Lord Goodhart?
Chairman: Lord Onslow, you were going
to ask question five.
Earl of Onslow: I said I would not ask
question five so we are straight on to question six anyway, are
we not? I thought I got a note from the Clerk saying that we had
covered question five, would I wind my trunk in, or words to that
effect.
Chairman: Do you want to start with question
six, Lord Goodhart, before you go?
Lord Goodhart: Yes.
Chairman: Why do we not go on to that
and we can always come back to question five.
Q112 Lord Goodhart: Chairman, I found
Professor Wells' suggestion on how to deal with corporate offences
very persuasive, namely that there should be vicarious liability
with the company being liable for any bribery committed by anybody
acting on their behalf with a due diligence defence, which is
in fact more or less exactly the same as what was put forward
in my note which has been circulated to the members of the Committee.
I wondered therefore whether I could ask perhaps the other two
witnesses here whether they agree that it really is unnecessary
to maintain the identification principle, that is to identify
any individuals within the company whose fault it is, or whether
it would in fact be simpler and more effective to go on with the
suggestion of Professor Wells in her article?
Professor Sullivan: I am very
much in favour of such a proposal. I think the retention of the
identification doctrine, or more accurately I suppose the postponement
of the question of corporate liability pending the wider resolution
of corporate liability questions in another Act, is the most salient
weakness of this Bill. In terms of foreign bribery it is almost
invariably a corporate offence, and if a person wishing to make
bribes could choose a corporate liability regime (it would prefer
not to have any at all of course but if that is not an option)
then identification is perfect because it essentially negates
the efficacy of the legislation. I think it is very regrettable
indeed, and this point was made many times to the Law Commission,
that there seemed to be a great deal of intransigence on this
point despite all the promptings of the OECD and the finding that
the UK was not compliant, principally because of its very limited
liability regime for companies.
Q113 Chairman: They have tried to
deal with it, have they not, by saying that a defence of adequate
procedures in negligence is not available if the person concerned
was a senior member of the company?
Professor Sullivan: Yes, but this
proposal for a failure of negligence supervision is very much,
I would say, a half-baked compromise between changing the basis
of corporate liability so corporations can be liable for the offences
per se and having this offence whereby in certain limited circumstances
a company will be liable for a lesser offence on the basis of
less than adequate supervision.
Q114 Chairman: But it gets away from
the identification principle?
Professor Sullivan: Yes, but I
think what we want is an adequate system of straightforward corporate
liability for overseas bribery and we simply have not got it and
we will not have it under this Bill.
Q115 Chairman: We are not going to
get it in this Bill either.
Professor Sullivan: Absolutely
not, no.
Professor Wells: Can I just come
in there because I can see that the argument will be made that
the criticism has been addressed. We clearly cannot change corporate
liability generically in this Bill. All we can do is say that
the generic provisions that we have are inadequate, they do not
work, and identification has very a very limited role, and I think
my argument here would be that clause 5 is presented as being
a new offence when in fact it is not a new offence as such; it
is the method within this Bill by which a corporate body can be
held liable, so it is standing in for identification liability,
if you like, which exists at common law. It stands in for that
in relation to the offences, although as it happens it only applies
to clause 1 and clause 4, but that is possibly a minor point,
although I think it could apply to clause 2 as well. If we see
it in that way, I think it is the way it is presented as being
a new criminal offence which then sends everybody into a "and
we must make it as restrictive as we can" mind-set which
is where it goes wrong. We can achieve, in a sense, what Professor
Sullivan is agreeing with me about—and I am sorry I did
not copy my paper to Mr Nicholls but Professor Sullivan has had
sight of it—and in fact it agrees with some of Professor
Sullivan's arguments in relation to the Law Commission's paper.
My argument is that we need a separate provision because otherwise
identification will be the applicable principle. I do not have
a problem with that still existing but given that we have got
a separate provision, this one seems to restrict corporate liability
quite unnecessarily and makes for a very complex provision. This
is where I think the Bill becomes unnecessarily complex. It seems
to use both negligent failure to supervise by a responsible officer
(but we do not know who that would be) plus it has due diligence
in the adequate procedures terms, and from my knowledge of other
jurisdictions which have developed their corporate liability principles,
often to conform to the OECD convention, it is most unusual to
have both aspects, both the prosecution having to prove that the
failure to supervise was negligent plus the defence, and therefore
I am very much in agreement that where employees or agents have
committed the clause 1 offence or the clause 4 offence, and that
is a predicate for this, then it is appropriate that the corporate
body in whose business they are acting and which is benefiting
then has to answer as to what provisions it has made to prevent
that kind of behaviour. That would be the due diligence or the
adequate procedures, so I would just remove the negligent aspect.
Q116 Lord Thomas of Gresford: So
they are strictly liable for any bribery committed by an employee
or agent, subject to proving due diligence? Where does the burden
of proof rest—the evidential or the full burden of proof—in
a situation like that?
Professor Wells: That is a matter
for debate. It would need to be clarified. It could certainly
be a probative burden. I think that would be regarded as proportionate.
It would then conform to the US provision. As you probably know,
the US has accepted vicarious liability as the means, as it were,
by which corporations are liable for acts committed within their
business, and offences committed within their business in any
case. It conforms with Austria's new corporate liability provision,
which is termed in terms of failure of supervision but I think
it comes to the same thing, and Finland and possibly Switzerland,
so we would certainly be conforming to quite accepted principles
there.
Q117 Lord Thomas of Gresford: Just
to follow it up, you are saying there are two possibilities, you
could either say the company have the burden of proving on a balance
of probabilities, which would be appropriate when it is a defence,
and that they have not been negligent and that their procedures
are correct?
Professor Wells: Yes, that they
have procedures in place.
Q118 Lord Thomas of Gresford: The
other alternative is that they raise the issue, and it would be
for the prosecution to prove beyond reasonable doubt that they
were negligent or their procedures were inadequate?
Professor Wells: Again, although
I have said they are possibly two sides of the same coin, I would
favour it being put in terms of either due diligence or procedures
because that then sends a message, and that goes back to the earlier
discussion that a company should be developing its own compliance
mechanisms and codes and ensuring that those are monitored, and
that can all come within due diligence or adequate procedures.
Yes, it could be either, I agree.
Q119 Lord Thomas of Gresford: I would
be interested in Mr Nicholls' view on that, the question of which
is the simpler thing.
Mr Nicholls: I would prefer the
second alternative, namely the burden being on the prosecution
to show that there were inadequate procedures. That is my immediate
reaction. You could say, of course, that if an offence has been
committed then prima facie there are inadequate procedures
and the burden then shifts, but certainly I would prefer the second
of Lord Thomas's proposals. I noticed last night, and I am afraid
I was looking at it very late, this question of liability and
the identification test and so on has also been considered in
the Australian Criminal Code, and if I can research it further
perhaps I could provide some material.
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