Examination of Witnesses (Questions 280
- 299)
WEDNESDAY 3 JUNE 2009
MR PHILIP
BRAMWELL, MR
ALAN GARWOOD,
MR LAWRENCE
HAMMOND AND
MR STEPHEN
BALL
Q280 Lord Thomas of Gresford: With
the stricter rules that there are in the United States, has the
United States defence industry as a whole become less competitive
in the world than, for example, the United Kingdom defence industry?
Mr Ball: I think there is a whole
range of things that make an industry competitive or not, and
I am not sure that the particular point of bribery is a way of
making yourself competitive. The outcome is that as a business
you need to do the right thing because, although in the short
term you may lose an opportunity because you are not prepared
to pay a bribe, in the long term it flows to the benefit of the
reputation of the company.
Q281 Lord Thomas of Gresford: So
in other words you would encourage this country to have a stronger
legal framework against bribery than we have at present and you
will be in support of this Bill?
Mr Ball: We would absolutely be
in support of the Bill. We believe that it would level the playing
field and ensure that people were focused on selecting contracts—
Q282 Lord Thomas of Gresford: And
it follows from that that you would not consider that this Bill,
if it introduces a stricter regime than exists at present, would
make British industry less competitive?
Mr Ball: I do not believe it would.
Q283 Chairman: These questions we
will be asking later on. I do not want to make it an entirely
anti-American session. After all, BAE Systems is half American
now, is it not?
Mr Bramwell: Yes, it is.
Q284 Martin Linton: I just wonder
if you could help us on a point of fact. It has been said that
there are lots more successful prosecutions in the United States
than there are in Britain and so on. Where can we find this listed
with any detail that is useful?
Mr Ball: I am afraid I cannot
answer that question, Chairman, at the moment, but if you would
like us to take that question away and come back to you with an
answer, I would be happy to try and do that.
Martin Linton: Chairman, I would
find that very useful.
Q285 Earl of Onslow: Can you give
us an instance where you have been asked for a bribe and consequently
lost the contract?
Mr Ball: I cannot give you a specific
instance. I did ask in preparation for this meeting whether the
corporation had indeed behaved in that way, where we had refused
to give a bribe and so had not bid for the work, and I was told
that, yes, that was the case, and that we had also refused to
employ international consultants on the basis of the fact that
we did not believe they would correctly represent the corporation.
Q286 Baroness Whitaker: From the
point of view of competitiveness would you not agree, Mr Ball,
that in fact to get a contract through bribery is a mark of failure
because it is a less good product which is then sold, so from
the buyer's point of view, not the manufacturer's, it is indeed
a less effective competition?
Mr Ball: I would absolutely agree
with that.
Q287 Chairman: Mr Hammond, please.
Mr Hammond: Thales in the UK is
fully aware of the perception of corruption within the defence
industry and therefore for several years has had a very substantial
code of ethics and compliance programme that runs throughout its
group, particularly within the UK. Obviously, it is set by our
parent company that is based in France. It is based upon predominantly
international standards, such as the OECD Convention. However,
subsidiaries such as Thales in the UK are able to modify that
to meet local legislation, local needs, and, as I say, it reflects
our very serious attempts to make sure that we have a fully compliant
organisation.
Q288 Chairman: If I could go back
to my Defence Committee days, I would have said you had even bribed
in the UK if you thought you could get all the contracts you want,
but I will not say that. The question I want to ask you is this,
if I may follow up my first question. The track record of Thales
is that you have had a few bad incidents in very recent years.
South Africa is certainly one, and the Far East, so has that had
any real impact on the company, "We cannot afford to have
bad publicity and therefore we have got to clean our act up"?
Mr Hammond: With regard to Thales
in the UK, obviously, the accusations that you refer to do not
relate to the UK businesses, although, of course, they do concern
the wider Thales Group, and therefore, yes, of course, there is
concern in the UK business about the impact that has. I am afraid
I do not have sufficient knowledge or detail to answer the specific
allegations, but certainly we work perhaps even more hard therefore
in the UK to make sure that we are compliant and that we do have
a very strong code of ethics to combat such accusations.
Q289 Chairman: As legislation is
now much more international could you write to head office and
ask if they could perhaps offer some light on the question that
you were unable partly to answer?
Mr Hammond: I certainly can.
Q290 Chairman: Thank you. BAE, a
British/American company?
Mr Garwood: What I would like
to say, Chairman, is that you mentioned publicity and one of the
things we have learned is that the reputation of our company and
how we are seen to do business is as important as what we do in
terms of programme execution and our financial performance. Over
the last few years you will be aware by mentioning the Woolf Committee
that the board two years ago gave a full commitment to implement
all 23 recommendations of that committee which we are now in the
process of doing. We have a team of 18 full-time executives and
several dozens more co-opted to a series of committees to work
out an implementation process for that, and we can talk more about
that. We have launched a code of conduct which we will happily
leave copies of for all members with the Clerk. It is a very substantial
document which we have briefed now to almost every employee. Every
employee in the company will be briefed on this and will have
to sign that they have been briefed, have understood it and will
comply with our code of conduct We have a new managing director
of corporate responsibility who was appointed late last year or
early this year and who reports directly to the chief executive.
We also substantially revised our policy on the employment of
advisers in the international marketplace some time ago and again
we have fully implemented that, so I think we have got a quite
comprehensive set of processes and procedures in place which are
getting us quite a lot of recognition that we are going to be
the benchmark for this industry in the future. If I may just address
the competitiveness point, I think it is absolutely a pointer
for the future that the British Government's change in this legislation
and support of the industry will improve British industry's competitiveness
in this industry and in its market and my colleague, who is the
Legal Director and General Counsel to BAE, and I are absolutely
at one on that commitment.
Q291 Chairman: That is a general
commitment?
Mr Garwood: A general commitment.
Q292 Chairman: Mr Bramwell, is there
anything you would like to add to that?
Mr Bramwell: No, I have nothing
further to add to that point, thank you.
Q293 Chairman: You are the one with
the ultimate legal responsibility. Does the fact that you are
partly an American company and have a great deal of your operations
in the United States mean that (a) the US law is generally tighter,
and (b) if it is, has any of that experience spun back towards
your operations elsewhere?
Mr Bramwell: Perhaps I can answer
that. The US business of BAE Systems, of course, is not listed
in the United States but it is a US business which employs roughly
half the workforce, some 53,000 people, I think, now, who are,
of course, subject to the FCPA, and BAE Systems' approach is to
apply the global high standard across its entire operations. We
may come on later to facilitation payments which would be an example
where we operate a system of prohibiting the making of facilitation
payments anywhere in the world within our company, notwithstanding
that in the US, for example, I think FCPA facilitation payments
are permitted. There is some read-across and I will come back
later to one area where we think the US Department of Justice
has some practices which may be of interest to this Committee
in terms of giving guidance on the application of them.
Chairman: I think all of us have
been exercised about that. Thank you very much.
Q294 Lord Williamson of Horton: I
think we have covered points 1 and 2 pretty thoroughly but I would
like to ask whether you think that allegations or facts about
bribery and corruption in the UK business should be blamed specifically
on weaknesses in the current law? The reason I ask is that this
Committee is not a committee of inquiry; this is a committee to
look at the draft law, so what we are concerned about is whether
the current law is not good enough and the next one is better,
and do you think that is a result of what has happened in the
past?
Mr Hammond: Certainly from the
Thales UK perspective we think that the current state of the law
may be one of the factors but, obviously, we do not have sufficient
information about what allegations of bribery are reported to
the necessary authorities, what level of those are investigated
and what proportion of those end up in prosecutions. All we do
know from some of the brief statistics that are available is that
there do seem to be a relatively low number but, of course, that
could be for a number of reasons. It could simply be because the
evidence is not there inasmuch as it may be because the prosecution
feel that they cannot secure a conviction in an efficient manner.
Chairman: Thank you. That is a
polite way of putting it, a low number of prosecutions. That is
the nicest thing I have ever heard.
Lord Thomas of Gresford: I think
there has been one successful prosecution since 2001 in the field
of foreign business.
Chairman: And not many after 1900.
Q295 Jeremy Wright: I just want to
go back a stage to the questions Mr George was asking about the
read-across to the Americans. I think what I have heard from two
of the companies represented here today say is that the way in
which you operate is to apply the standard that would be relevant
to the United States legislation across the board, broadly speaking,
so that you operate to what appears, at least to us, to be a higher
standard under US legislation than currently exists under UK legislation.
That is certainly what Lockheed Martin do and I think I understood
the gentleman from BAE Systems to say the same. I was just wondering
whether from a Thales point of view you can help us with, if you
do not do that, why you do not do that, assuming that you do do
business in the United States under that legislation. What are
the particular reasons, if you do not adopt the same practices,
why you do not do so?
Mr Hammond: We do have quite substantial
businesses operating in the US and therefore the US companies
will be subject to the FCPA in the same way as any other US entity.
However, being headquartered in France, France has decided that
there are a number of standards that are available to it and we
have already heard about the Woolf Report. There is the FCPA as
well as other conventions, and because, as it has grown into an
international and far-reaching company, it has determined that
it should base its standards predominantly at the top level on
international standards and then it is for the local legal entities
within any particular jurisdiction to make sure that the local
rules are also abided by and overlain as necessary.
Q296 Jeremy Wright: That I understand,
but what I do not understand is why it is not more efficient from
a corporate point of view to say, "There are a variety of
different corruption standards around the world. What we will
do, so everyone understands what they are doing and what our competitors
appear to be doing, is to say that we will take the most onerous
of those requirements and we all comply with that around the country,
around the world". Why is that not the approach that is taken?
Would it not be easier to understand for everyone who works within
the organisation?
Mr Hammond: Indeed it may be.
Unfortunately, I cannot answer that particular question because
I do not know why that has not been chosen. However, what I would
say is that, as we have already heard, the FCPA, for example,
does make certain exceptions. It has a "reasonable belief"
defence, for example. It also has a de minimis rule for
certain facilitation payments, so can it necessarily be said against,
for example, some of the international regulations that are out
there that it is in fact the toughest one? I think in order to
get the toughest position you would probably have to mix and match
from a whole series of legislation and regulations and conventions
that are out there.
Q297 Linda Gilroy: Perhaps I could
ask each representative of each company to set out your position
as to whether you accept that there is a need to strengthen corporate
criminal liability for bribery. We have received quite mixed evidence,
as you probably know, some people telling us it is too tough,
others saying that it is only just enough not to ruin UK competitiveness.
What is your view on clauses 5 and 6 and do they in your view
need changing in any way? Perhaps Thales first.
Mr Hammond: Perhaps I can answer
that in two parts. The first one is that you refer to the need
to strengthen corporate criminal liability for bribery in this
country. Yes, we fully support the Government's desire to consolidate
and modernise the law and therefore, yes, in principle we are
supportive of the Bribery Bill, if nothing else to meet, as we
say, the perception of bribery and also perhaps to meet the criticisms
of some of our international counterparts that believe our law
currently does not go as far as it should. With regard to the
second part of the question, clauses 5 and 6 with regard to corporate
liability, yes, we are supportive of them. However, we believe
that the drafting of the present Bill, particularly as it relates
to negligence, to the definition of "senior officer",
"adequate procedure", and particularly questions over
liability of subsidiaries, joint ventures and other business constructs
is something that we would like to see clarification on before
it reaches the statute book.
Q298 Linda Gilroy: I think some of
my colleagues might pursue some of those particular issues in
a moment, but do I take it from the first part of your answer
that it is more or less to set out something that improves the
reputation rather than makes any particular difference to your
practice at the moment? Perhaps I can phrase that by asking you
will the Bill and the provisions in it make you change your practice
in any way further?
Mr Hammond: There are two elements.
First of all, obviously, perception is important because reputation
to businesses within the defence industry is very important. As
I have said before, I think it is quite difficult to determine
why this country does not have a higher level of prosecutions
and convictions than it actually does. That may be due to weaknesses
in the law, and we accept fully that there may be shortcomings
in that area, but equally it could be for other reasons. Will
it change what we do? We believe that we already have a very substantial
code of ethics and compliance programme. We do, of course, keep
that under review and we will, of course, make any necessary changes
to reflect what we regard as any change in the law. However, you
must remember that there are already corruption laws. We are already
signed up to the OECD Convention. We are already signed up to
our common industry standard. Therefore, we believe that we already
follow what is best practice at this point in time.
Q299 Linda Gilroy: So would you therefore
expect it to result in more prosecutions?
Mr Hammond: That is possible,
certainly perhaps until some of the messages get home to certain
parts of the industry, but hopefully—
| 
