Examination of Witnesses (Questions 320
- 337)
WEDNESDAY 3 JUNE 2009
MR PHILIP
BRAMWELL, MR
ALAN GARWOOD,
MR LAWRENCE
HAMMOND AND
MR STEPHEN
BALL
Q320 Lord Thomas of Gresford: Drafting
takes that into account obviously. The jury would ultimately decide
in a prosecution and they would have regard to all the circumstances
in which due diligence was exercised, including the size of the
company and the cost to the company of doing more than they actually
did. The difference here is between putting the burden of proof
beyond reasonable doubt in negligence upon the prosecution or
putting a burden upon the defence on the balance of probabilities
to show due diligence. Which would be simpler from your point
of view, do you think?
Mr Hammond: Given the serious
consequences that would arise as a result of a criminal conviction,
I believe that it should be for the prosecution to show beyond
a reasonable doubt.
Q321 Lord Thomas of Gresford: Negligence
beyond a reasonable doubt?
Mr Hammond: Indeed. We believe
that negligence does not carry the necessary intent for such a
serious crime and we would very much hope that a higher test would
be required.
Lord Goodhart: All the information
is in the possession of the company.
Lord Thomas of Gresford: That
is the burden of proof point. You cannot expect the prosecution
to have access to all your files and procedures in order to show
negligence; whereas, if the burden were upon you of showing on
the balance of probabilities that you had exercised due diligence,
you would have ready access to all your documentation in order
to establish your case. From the point of view of the court and
a jury, it is far simpler, as Lord Goodhart has pointed out, to
have the burden of proof proving the defence upon the defendants
who are in possession of the facts.
Chairman: Send us a group brief on this.
Lord Lyell of Markyate: Would
not the same discovery be necessary whether it had in place adequate
procedures as in the Bill or had to prove due diligence? Would
there be a difference?
Lord Thomas of Gresford: It would
be for the company to prove adequate procedures. To put the burden
on the prosecution of proving negligence and then of proving that
it is negligence for example of a senior officer and so on is
a very considerable burden for the state to bear when what we
are postulating is vicarious liability for a bribe that has been
committed by somebody in the name of the company. That has happened.
That is the sine qua non of a prosecution. You have to
prove that. It should then be, it seems to me, for the company
from its books and records, to show that they have acted with
due diligence and then the burden of proof would be less upon
them.
Lord Lyell of Markyate: That is
a fair point. In other words, the prosecution might fail at the
first fence, so the defence would not have to succeed at the second
fence.
Lord Thomas of Gresford: They
would not have to raise it. The case would be thrown out half
way if the prosecution failed to prove prima facie that
negligence had occurred.
Chairman: That little exchange
will cost you at least £50,000 on the open market afterwards.
Q322 Martin Linton: Can I ask Mr
Bramwell to tell us, in a letter if necessary, what this £20,000
consists of to investigate due diligence on the part of one individual?
Is that legal fees? If you can tell us now, so much the better.
Mr Bramwell: There are specialist
providers of deep background research on companies and individuals
overseas, some of whom are based in this country, some of whom
are in the United States. That would be a fee which is not untypical
for them to charge for a deep background report, which is the
sort of thing you would need to comply with the policies which
companies such as those before you today operate.
Q323 Martin Linton: An investigator?
Mr Bramwell: Yes, to conduct what
we in the industry call due diligence on individuals with whom
the company is considering doing business. It is an expensive
proposition.
Q324 Chairman: It would involve private
investigators?
Mr Bramwell: They have become
public companies in their own right now. A point that I have made
to the Minister for Justice is that there are two observations
here. Firstly, that the United States again, in terms of its practice
in this area, holds central databases on screened individuals
with whom companies may choose to do business overseas, which
will save US companies very significant costs. Also, the United
States embassies, consulates and commercial attachés are
very supportive of American businesses' local needs in terms of
finding appropriate people to do business with. That is not the
case currently with British embassies generally if you do not
have commercial attachés associated with them. It is an
area that I believe the Foreign Office might consider providing
support in because there are significant consequences for British
businesses of this type of burden, particularly for the medium
sized exporter.
Q325 Chairman: You have tried that,
have you, and they have said no?
Mr Bramwell: It is not that they
have said no. They have very limited resource in many countries
and they are not able to provide the customised service to support
British business in the way that US embassies will support American
businesses.
Q326 Linda Gilroy: I have been sitting
here thinking how this applies to a particular characteristic
of defence contracts. It is something you mentioned in the Woolf
Committee report, offset. I will not try and describe what offset
is because this is a question particularly for Mr Bramwell. Would
you agree that getting this right is probably the remaining biggest
risk to reputation, having due diligence and procedures which
ensure that issues of offset are dealt with in a transparent manner,
and will the Bill have an impact on how you and other companies
deal with it? What impact is it likely to have on trends in offset
being a feature of most big defence contracts?
Mr Bramwell: That is a very good
question. Offset is not generally something that is proffered
by defence contractors. It is more likely to be something requested
by governments putting work out to tender. There are various forms
of offset and they require long term presence and, in many cases,
in-country delivery. The same degree of rigour needs to be brought
to bear with regard to offset arrangements as it does with the
original contract. If you operate, as BAE Systems does, a risk
assessment based approach to doing business locally, there are
significant risks associated with offset because credits are awarded
by government departments in return for work done. They may not
be linear with the cost of the work. We are currently yet again
revising thoroughly our offset processes and policies to ensure
that we apply the same standards to offset as we do to business
winning generally. I do not expect offset to decline, because
it is a feature that government buyers of defence equipment wish
to see and indeed stipulate in their contracts.
Q327 Mr Borrow: If we can move to
clauses 1 to 4 of the draft Bill and perhaps look at the wording
of those clauses and the way in which it relies on concepts such
as an expectation of good faith and whether payments were permitted
under law applying to a foreign official, I think it would be
helpful to the Committee if the three businesses represented could
let us know whether they feel the wording is clear, predictable
and fair from their perspective and, if not, how it could be improved.
Would guidance be one way of improving what is currently on the
table?
Mr Hammond: In principle, Thales
is supportive of the defences under sections 1 to 4 of the Bill.
However, again we have concerns with regard to the drafting. You
have just mentioned such issues as acting in good faith, impartiality
and being in a position of trust. Obviously I was a little concerned
when Professor Horder said in his evidence that these were not
the civil law concepts as we know them and that these were matters
to be determined by the jury. I am sure the jury would be guided
by the judge in any particular case, but if those particular concepts
are not to have their civil law meanings and connotations the
question is what meanings do they have. Business will only find
out on a case by case basis as prosecutions abort and as clarification
is given in the reports. One thing that businesses want is to
stay out of the courts and therefore clarity of their obligations
in advance, so that they can take the appropriate measures and
put in place the appropriate means to prevent breaches, is obviously
our preferred route. We would wish for clarification, either on
the face of the Bill with regard to those particular issues, or
alternatively in the form of guidance. Here I appreciate that
guidance, particularly if it emanates from a government organisation,
is unlikely to carry the necessary weight to be a complete defence.
Perhaps I can take by comparison the health and safety legislation
and the guidance that is given by the Health and Safety Executive.
It is not mandatory for companies to follow that guidance. However,
they do not do so at their peril unless they have a very good
reason and can justify otherwise. Perhaps that may be one possibility
for how the guidance can be given.
Q328 Mr Borrow: Are either BAE Systems
or Lockheed Martin in agreement with that or do you want to add
anything?
Mr Ball: As somebody trying to
be compliant with the law, if I had to turn to a lawyer to explain
to me what these terms mean, it is less useful. The example of
health and safety law is a very good one.
Mr Bramwell: I would agree wholeheartedly
with Mr Hammond's remarks.
Q329 Baroness Whitaker: Taking the
interesting example you give of the approved code of practice
under the Health and Safety at Work Act and still on the question
of clarity, do you think there are other areas in the Bill which
are too uncertain for companies to implement and that this could
be resolved through the provision of guidance of an authoritative
kind? The phrase "adequate procedures" comes to mind.
I am not aware of anything quite so specific in your own guidance.
The Woolf Report very properly endorses your ban on facilitation
and it has some very tight controls it offers on subsidiaries
and joint venture syndicate partners. Do you see merit in spelling
out the meaning of any of the terms in the Bill?
Mr Hammond: Yes, we do see merit
in clarification.
Q330 Baroness Whitaker: Which ones?
Mr Hammond: As we have previously
mentioned, particularly the concept in sections 1 to 4 relating
to issues such as good faith, impartiality and being in a position
of trust. Also regarding the term "improper performance".
Then we move on to the corporate offence. Further consideration
and clarification would be welcome by Thales if the definition
of "senior officer" and perhaps I could point the Committee
in the direction of the Corporate Manslaughter and Homicide Act
which has a definition of "senior management" which
we believe much more closely reflects the control in mind and
those at the highest levels of responsibility rather than what
is offered in the draft of this Bill. Likewise, as we have mentioned,
I do not know whether the same comment applies if Professor Horder
was asked. He has obviously stated that a number of the terms
in this Bill he does not see as being the same as we would understand
them under the civil law. I wonder if that can be the same as
negligence. He refers to the Manslaughter Act as one of the areas
where he says that he leaves the concept of negligence to be determined
by the jury. Interestingly enough, the Manslaughter Act does not
refer to gross negligence. It refers to a gross breach of the
duty of care that is owed and stipulated in that legislation.
Interestingly, the drafter of that Act determined to embody in
the legislation their understanding of what they required with
regard to duty and care and the test that was to apply with regard
to determining whether there had been a gross breach; whether
that clearly reflects aspects of negligence from the civil law.
Whether it is exactly one of those things we remain to see because
the first prosecution under that Act is still pending. There are
very recent examples of where, on the face of the Bill, clarification
and clear guidance has been given and obviously if it is incorporated
into one single document that would be preferable, but we are
equally in favour of guidance issued by other authorities if that
is the chosen route.
Q331 Baroness Whitaker: Do you think
any such guidance is capable of international agreement? Is that
a realistic proposition, sector wide, say?
Mr Hammond: Within the defence
sector, there are very strong efforts being made, certainly within
the European defence and aerospace industry, to adopt common standards
and for each of the members within those countries to lobby their
parliaments in order to make sure that there is consistency across
the piece. Ideally, I would like to say yes. I would like to think
it was possible but I do see a number of practical difficulties
to that, even in terms of signing up to the OECD Convention, for
example, and some of our international partners as to whether
we have complied wholly with incorporating the terms of that Convention
into English law.
Q332 Baroness Whitaker: You think
it is worth a go?
Mr Hammond: Certainly.
Q333 Mr Carmichael: I am interested
in your parallel with health and safety legislation and the issuing
of guidance as part of the corpus. If you go back to the primary
legislation, the Health and Safety at Work Act, that is drawn
very widely. It imposes certain very general duties in relation
to occupation of premises, the provision of a safe system of work
and the rest of it. Hereafter, there is a vast body of regulation
which for all practical purposes is what businesses will look
to in terms of the construction of their policy. Are you telling
the Committee that that is something that you would find acceptable;
that you could accept the somewhat novel concepts that there are
in some of the provisions in clauses 1 to 4 if you were given
that secondary guidance? Is it also your evidence that that would
be preferable, in your view, to having the guidance provided in
primary legislation?
Mr Hammond: It would partly depend
upon the timing of the guidance. One thing that business does
like to see as far in advance as possible is what its obligations
may be, because it gives it time to prepare, to review its own
practices and procedures and, if necessary, to amend those and
bring them into line. As a lawyer, I would have to say it is obviously
much easier to read one single document and to refer to one particular
point of reference, but we are equally used to rifling through
numerous documents, sources and points. I would have no particular
objection to following the format of secondary guidance.
Q334 Mr Carmichael: That would effectively
cure some of the objections that you have to the novelty of some
of 1 to 4?
Mr Hammond: If that guidance was
forthcoming either contemporaneously or very shortly after the
primary legislation and ideally before there are any pronouncements
perhaps through the courts, yes.
Q335 Mr Djanogly: Are facilitation
payments and corporate hospitality adequately addressed within
the Bill or in effect is it best left to prosecutorial discretion,
or should there be de minimis limits put in for instance?
Mr Bramwell: I think we are at
the de minimis level, certainly in relation to hospitality,
especially in these strained times. I do not think that it could
sensibly be argued in relation to defence contracting that almost
any amount of corporate hospitality within normal bands could
be viewed as amounting to something that would sway a decision
maker's opinion one way or the other. Corporations have extensive
policy process around corporate hospitality now and I believe
governments and members of the Armed Forces most certainly do
have very significant restrictions on the hospitality they can
accept from the industry in our sector. As far as facilitation
payments are concerned, you have heard BAE Systems' view. It is
at one end of the spectrum. Our policy recognises that, where
the safety or welfare of an employee would be placed at risk by
refusing to make a facilitation payment, they may make that payment,
provided they immediately report it. From my perspective, these
are at the petty end of the spectrum with which this Bill is concerned
and not something which should cause the draftsman or yourselves
a great deal of time, given that the industry is I think across
all sectors capable of regulating itself.
Q336 Mr Djanogly: Was that just a
call for prosecutors to be careful or do you think the de minimis
provision should go into the Bill?
Mr Bramwell: I think the de
minimis provision should go into the Bill.
Q337 Lord Mayhew of Twysden: Would
you accept that, if somebody were to adjust the way in which he
performs a function by reason of having accepted hospitality,
that would be an improper act on his part? If that is something
that has to be accepted—I think I see you nodding but I
do not want to put words into your mouth—it is very difficult,
is it not, to see how the Bill as drafted excludes liability for
the offering of hospitality, because presumably people are offered
hospitality with a view to encouraging the exercise of a discretion
in their favour? I wonder whether you are relying, because there
is not enough clarity in section 1 on the good sense of prosecutors,
in which case you can hardly rely on the good sense of a private
prosecutor perhaps to the same extent.
Mr Bramwell: That is a fair observation.
Mr Hammond: I do not think this
should be left to prosecutorial discretion. We are obviously all
fully aware of hospitality and facilitation payments and therefore,
particularly as there is precedent for dealing with this in other
legislation—the FCPA for example and the OECD Convention
mention it—why could we not deal with it in the Bill? Let
us tackle the issue head on and give certainty to the matter.
We understand prosecutorial discretion and how it currently operates,
but perhaps that is just simply a reflection of measured public
opinion at any point in time. That may change.
Lord Williamson of Horton: I do
not ask for an answer but I do want to make this comment on facilitation
payments. If one of your employees is asked to pay a few thousand
dollars to, say, a party official in country X, you have to count
that as a bribe. That is the law in this draft legislation. Your
American competitor can take out a big bank roll and hand it straight
over because, under American legislation, it is explicitly excluded
from being treated as a bribe. It is a nice little gap available
to American exporters owing to the very lax drafting, deliberate,
of the American legislation.
Chairman: We appreciate your answers
and we would appreciate even more your writing to us. I must rush
in and defend the United Kingdom on these great charges that there
are no prosecutions. The jewel in the crown of prosecuting frauds
and bribers was Gordon Richmond Foxley, director of ammunition
procurement, who was sent to jail for four years and served two
years in Ford Open Prison. Part of the sentence was that unless
he paid £1.5 million within 18 months he would have to do
the four years. They forgot and when finally it was remembered
the government went to the High Court and they were told, "Too
late, mate", so even when there is a success it turns out
as a grotesque failure. I hope that this legislation will eventually
get through. If there is bribery, as I am sure there is, I hope
the perpetrators at whatever level at long last in this country
feel the taste of justice and not in Ford Open Prison. This will
not affect any of you gentlemen, but thank you very much for coming.
We appreciate it.
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