Examination of Witnesses (Questions 300
- 319)
WEDNESDAY 3 JUNE 2009
MR PHILIP
BRAMWELL, MR
ALAN GARWOOD,
MR LAWRENCE
HAMMOND AND
MR STEPHEN
BALL
Q300 Linda Gilroy: But not your part
of the industry?
Mr Hammond: In terms of the larger
members of the defence industry, and I am sitting with colleagues
from very large organisations, you have heard that we do all have
substantial programmes that we have invested a lot of time, effort
and resource in, and therefore we believe that we have made every
effort to minimise bribery occurring within our organisations.
Q301 Lord Thomas of Gresford: Mr
Hammond, I think I heard you say a few minutes ago that Thales
in France operated a de minimis rule, and I think you spoke
of them with approval. I wonder if you see anything in the Bill
to cater for that concept.
Mr Hammond: With respect, with
regard to de minimis, I was referring to the FCPA which
does carry it. We do not operate a de minimis rule internally
within the Thales compliance programme.
Q302 Linda Gilroy: Can I ask Mr Bramwell
the same question? Do you accept the need to strengthen corporate
criminal liability for bribery and what are your views on the
new offence?
Mr Bramwell: Firstly, the company
welcomes this Bill, as much as anything because it will clarify
English law on the subject of bribery. What all corporations need
is clear law combined with clear prosecutorial policy. When we
talk of convictions, we need to understand that convictions are
a product not only of the law but of the policy associated with
prosecutions to be brought under it. From the company's perspective,
you will see the reaction that the company has made in terms of
redoubling its efforts and redoubling its efforts again most particularly
in the last two years. It is fair to say that as we read the Bill
now we do not think that we would do anything that we are not
already doing. We think we have a relatively high level of comfort—and
I suspect other industry participants will as well—that
our existing compliance systems are adequate to comply with the
existing law.
Q303 Linda Gilroy: Are there aspects
of the recommendations of the Woolf Committee which would suggest
that the provisions in the Bill should go further if there is
to be a level playing field?
Mr Bramwell: No. This Bill would
provide the sort of environment in which a company like ours,
committed to implementing all the Woolf Committee's recommendations,
can operate with a degree of certainty and a degree of comfort
that it has the right level of compliance. We welcome this Bill
in broad terms. We think it is a step forward.
Q304 Linda Gilroy: Do any of the
provisions need checking in any way? Do you share any of the reservations
that are expressed?
Mr Bramwell: We share a number
of concerns that may have been expressed to you by the CBI recently,
most particularly in their written submission. The existence of
a reasonable person test in terms of concluding how certain behaviour
or expectations may be set we think is subject to wide interpretation
and therefore could be associated with uncertainty. Like any company
or individual citizen, we have concerns about creating criminal
offences which are only established in accordance with civil standards.
This seems to us to be somewhat unsafe in terms of risk of perverse
outcomes and prosecutions. Our preference would therefore be that
the conventional approach to offences is taken in terms of appropriate
criminal intent being established. That said, if the standard
remains, we have a degree of comfort that the measures we have
taken are so significant that we are satisfied, for example, where
the adequacy test applies, that our internal policies and processes
will be deemed to be adequate in the event of any prosecution.
Chairman: We have a policy decision to
make. There is no way we are going to finish at 4.15 with our
witnesses. Either we are ruthless with no interventions, expecting
short answers, or because this session is on an important subject,
I think we should go on.
Earl of Onslow: It seems to me
that the accusations of bribery which swirl around the arms industry
are quite extraordinary. We have here four people who represent
that at its highest and I would strongly recommend to the Committee
that we grill these people as much as we possibly can so we can
get the right answer out of them, because I think these are probably
some of our most important witnesses.
Chairman: I think we ought to go on because
this is a very, very important subject. As far as I can see, our
witnesses are genuinely trying to forget the past—they all
have form as organisations—and address the future. We are
not addressing the past. We know the past. We are trying to find
solutions for the future. Mr Bramwell, as you have such experience
and you will obviously be in touch with your colleagues in the
United States, you have criticised the Bill. You have every right
to do that but when you write a memorandum would you mind doing
it in some detail so that we can seriously consider incorporating
it if we agree with your suggestions? Because you are a multi-national
company, if you could give us a company perspective on legislation
and its implementation and strength in the United States, this
would be an option for us.
Q305 Mr Djanogly: On the United States
legislation, the corporate offence equivalent to my understanding
in the US has a defence if the company has been cleared by a regulator.
This is not a concept that has any history in the UK but does
the panel think that it could do in the future in relation to
this Bill?
Mr Bramwell: The United States
prosecutorial practice is quite different from that which we traditionally
have operated in the United Kingdom. What most sets apart a very
large body of legislation and precedent in the United States from
a company operating in the sector's perspective at least is the
availability of what is called the Foreign Corrupt Practice Act
opinion procedure, wherein any company that is an issuer or is
listed in the United States is able to write to the Department
of Justice, describe a factual circumstance, not hypothetical
but actual and how the company proposes to deal with it. Upon
filing—which can be done over the internet—it will
receive the US Attorney General's opinion within 30 days as to
the Department of Justice's interpretation of the extent to which
that conduct does or does not comply with the FCPA. This is of
immense value to companies looking for certainty about how conduct
would be treated and about the efficacy of their proposed approach
to compliance. It is especially useful around mergers and acquisitions
of new businesses that may have an uncertain history. However,
it must be a significant consumer of resources and capability
and I am not aware that those likely to be tasked with administering
the new Act, should it become such, would have access to the budget
or the resources to provide that.
Q306 Mr Djanogly: Should those who
use it pay for it?
Mr Bramwell: I have brought with
me the opinion procedures regulations, but I am not aware that
there is any charge for that service at all.
Q307 Mr Djanogly: Should there be?
Mr Bramwell: A government department
charging for opinions as to compliance might place governments
themselves in slightly difficult waters. It might be best provided
as a public service.
Q308 Mr Djanogly: Other regulators
are paid for by users.
Mr Bramwell: One of the things
we might come on to is that there is a significant difference
in ability to pay between large, medium and small companies. This
Bill does not and cannot discriminate between the treatment of
large and small exporters.
Q309 Lord Thomas of Gresford: I understand
there is a department in the Department of Justice which deals
with this giving of advice. It extends all the way, right through
the federal system throughout the States. They employ something
like 60,000 people. You tell us about the procedures that you
have developed. Let us take a situation where an employee in a
subsidiary company in a foreign country is told, "You get
the contract if you pay X amount of pounds or dollars" or
whatever it is. What, under your procedures, should that person
then do? Remember we are talking about corporate responsibility.
How far up the chain would it go before the decision is taken
either not to pay or to pay? How would it be recorded in the books
of the company?
Mr Bramwell: It would not go any
further up in the first instance because there is an absolute
prohibition globally within our company on the payment of bribes
or indeed facilitation payments. The company does not believe
that business obtained tainted by corruption and bribery is worth
having. The company would withdraw from a procedure that it believed
was tainted by corruption and then a report would be made which
would go to the Global Compliance Department, which is based in
the United Kingdom and also has an office in Washington DC. A
report would be filed by the company with the relevant tendering
government and any other regulator that was deemed entitled to
receive a report by the company. There would be no escalation
for a decision whether or not to pursue such a contract.
Q310 Lord Thomas of Gresford: There
would be a reporting of it according to your procedures and that
would go up the company to an appropriate level. Did you say that
verification would be given to the country concerned, that this
was in the pipeline?
Mr Bramwell: It would go to the
global head of compliance. Most tenders contain an obligation
on the respondees to notify the tendering government of any wrongdoing
associated with it or breach of the procedures. There would probably
be an obligation triggered immediately to notify the government
seeking the product and indeed then there would be in all likelihood
parallel reporting obligations under internal company procedures
and under international law.
Q311 Chairman: Is there a French
and/or American perspective?
Mr Hammond: I do not know Mr Bramwell's
exact procedures but it sounded very much like he was describing
what the Thales procedures would be in exactly those circumstances.
Q312 Earl of Onslow: I have this
problem in my mind. The President of South Africa is accused of
taking a slice of the cake in something he wanted to pursue. I
cannot remember what it was. We had the Hinduja brothers convicted
of something to do with guns and the Indian Government. I cannot
remember. Obviously Saudi princes seem to like getting a slice
of whatever action there may be. I can understand your answer
to Lord Thomas about an agent at a relatively low level. When
you get somebody at that level saying, "I control the whole
defence budget and unless you go through my agent who has a Swiss
bank account, you will not get the contract", you and I know
that is bent. You and I also know there are large numbers of people,
either in Aérospatiale or in Flincher, who are earning
their living making widgets to go into machines which kill people.
How do you get round what seems to be a real problem of people
who are total controllers of that budget? It is not like just
an agent in a company but these are people right at the top who
are determined to help themselves. I ask this as a seeker of information.
Mr Garwood: I think the answer
is you do not get round it. You just do not take the business.
If you are asking will British industry lose business as a result
of this Bill, the answer is almost certainly yes. Businesses,
ours included, will decline business. If you ask me have we done
so, we have declined business on this basis and will continue
to do so because our rules are absolute. That is our position.
There is no variation from that.
Q313 Earl of Onslow: Are you honestly
telling me that, if you were asked to sell X numbers of very expensive
aeroplanes to company A with all that that entailed, you would
say, "I am being whiter than white and I am going to turn
it down because I am not going to allow the Defence Minister's
first cousin's agency, wherever it may be, to take a slice and
I know that one of your other competitors is going to try and
take it"? Would you honestly turn that down? It is a moral
dilemma which I quite see is extremely difficult and I am not
attacking you.
Mr Garwood: The answer is unequivocally
yes. We would turn it down. I repeat: we have turned down business.
It is bad for Britain and for British industry to take business
on those terms.
Chairman: A lot of what we are
considering takes this into account very strongly.
Q314 Lord Lyell of Markyate: I am
going to move to question four, which is very closely related
to what we have been discussing. If I may say so, gentlemen, we
have the privilege of having before us four high calibre people
who understand this subject and I have not at the moment been
able to fault a single answer. What we have to decide is not your
calibre; we have to decide what is the right Bill to put into
English law. There is a serious question in relation to clause
5 which effectively gives a defence of having in place adequate
procedures. Some people are suggesting that this should go wider—I
am not sure whether it would or it would not—by saying that
you should be automatically liable if a bribe has been made in
the company's name except where due diligence is established or
adequate procedures are in place. You will see the similarity
of the wording but do you have any views as to whether you prefer
the Bill as it stands or do you think it should be widened in
that way?
Mr Ball: My background is as an
engineer, not a lawyer. Although I lead a business, what I seek
is clarity, something I can understand. If you want Lockheed to
comment on the detailed provision of this, we would prefer to
do that through a written submission.
Q315 Lord Lyell of Markyate: You
have two very good lawyers on your team.
Mr Ball: I bow to their superior
knowledge on that.
Mr Hammond: Would we wish to see
it widened? No, I do not believe we would. As members of the CBI
we support the written evidence that has been submitted and the
concerns raised particularly about the adequate procedures defence
and its availability particularly relating to the definition of
senior officer, which includes managers, which seems to be a very
broad category of people and does not necessarily reflect the
seniority within the organisation. If that were to remain there,
there is a risk that the defence is taken away immediately because
the negligence would be deemed to be on the part of senior officers.
Our understanding of the Bill is that that would take away automatically
the defence of having adequate procedures in place, which we believe
is rather unfair in certain circumstances.
Q316 Lord Lyell of Markyate: If there
is a blind eye at too low a level, it is not fair on the corporation?
Mr Hammond: I would not put it
in those terms but we are concerned about the fact that it is
possible for a corporation to be convicted under clause 5 without
having intent.
Q317 Lord Lyell of Markyate: In terms
of a sufficiently senior level?
Mr Hammond: In terms of a sufficiently
senior level and there may well be extremely good procedures in
place. However, due to the acts of one particular individual at
a relatively low level, there would almost automatically be a
liability on the part of the corporate entity.
Mr Bramwell: I would respectfully
agree with Mr Hammond. That is precisely the position that BAE
Systems would take. Large companies are well experienced in terms
of operating sound systems of internal control across a wide range
of activities. They have to comply with a plethora of rules and
regulations and they have the resources necessary to be able to
do so. What is required is a degree of recognition in the law
that there are no absolutes. In a family business of six or seven
people, one may have absolute confidence as a board member that
you can vouchsafe for every member of your business. By the time
you get to 100, it is more difficult. 1,000 is more difficult.
With over 100,000 employees, you are dealing with much more complex
organisations. You are talking about exhaustive training procedures
and sophisticated compliance and oversight programmes. The defence
as drafted, subject to the caveats of the CBI input, is balanced
but I would echo what Lord Woolf said in his report. Boards should
absolutely take responsibility for the effectiveness of their
internal controls across the enterprise. If there is aberrant
behaviour, and there will be statistically in 100,000 people on
a fairly regular basis, then provided there is a sound system
of internal control then that, in my view, as a corporate practitioner,
should not lead to criminal liability. If the tone from the top
is wrong, if there is a sense that there is a blind eye turned
in the board room to the winning of business and the terms upon
which it is won, I think this Bill gets it just about right in
broad terms, in terms of making it clear that those in the boardrooms
of companies doing business internationally must take this issue
very seriously indeed.
Q318 Lord Goodhart: You say that
what is desirable here is clarity and I agree with that but would
it not be simpler and therefore clearer to cut down some of the
provisions of clause 5 and say that, where you have somebody acting
on behalf of the company who has committed bribery, the company
is liable unless it can prove due diligence? That seems perfectly
straightforward. I think it goes with what you have said, Mr Bramwell,
about the duty of the board. That spares you the trouble of having
to define who has been negligent. Also, the problem is that absence
of due diligence cannot be pinned on any particular individual
or group of individuals. Would that not be a simpler and therefore
better way of proceeding?
Mr Bramwell: I understand your
point and I think it has much merit. The only observation I would
make in response is that we are dealing here in prospect with
a Bill which will affect a very wide range of businesses in England
and Wales. If I tell you that it routinely costs in excess of
£20,000, sometimes £30,000, to carry out due diligence
on a single individual before you engage in a business relationship
with them overseas, that is an expense which a high value, low
volume contractor such as a defence industry contractor can absorb
and invest in an attempt to win business. If you are a medium-sized,
infrequent exporter of relatively low value goods, it will be
extraordinarily difficult to make that sort of investment in due
diligence as we call it in large companies. Negligence at least
has a situation of awareness around it when it comes to be considered
by a court.
Q319 Lord Goodhart: I think adequate
procedures might lead to a problem.
Mr Bramwell: Yes. My only concern
is that one would have to have confidence that the prosecutorial
or investigative authorities were aware that one size could not
fit all in this case. What it is reasonable to expect a large,
multi-national to do it is not reasonable to expect a medium sized
enterprise in the provinces to do. Their business would simply
be non-viable.
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