UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 430-iiHOUSE OF LORDSHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFOREJOINT committee ON THE DRAFT BRIBERY BILL
Draft Bribery Bill
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This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Transcribed by the Official Shorthand Writers to the Houses of Parliament: W B Gurney & Sons LLP, Hope House, Telephone Number: 020 7233 1935
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Oral Evidence
Taken before the Joint Committee on the Draft Bribery Bill
on
Members present:
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Goodhart, L Henig, B Mayhew of Twysden, L Onslow, E of Sheikh, L Thomas of Gresford, L Whitaker, B |
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Mr Jonathan Djanogly Linda Gilroy Martin Linton Jeremy Wright
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Witnesses: Mr
Colin Nicholls QC, Professor Celia Wells,
Q75 Chairman: May I, first, welcome all three of you. I know that you have played your role already behind the scenes in getting this legislation into a draft form. Is there anything any of you would like to say by way of introduction?
Mr Nicholls: No, I think not; we have got a list of questions.
Chairman: We have just allocated them round the Members of the Committee. Shall we start? The first question is whether it is an improvement on the 2003 Bill and the draft law, and, perhaps particularly, how does it compare with legislation in other countries. Lord Anderson, you wanted to ask that.
Q76 Lord
Anderson of
Mr Nicholls: Most certainly, I think, lessons have been learned. We have to realise that the old law was a patchwork of legislation which was designed to deal with specific issues. From time to time things were added, and finally the anti-terrorism crime, security act. So there was this patchwork and it had got to be remedied in some way. There was the consultation process that led to the 2003 Bill. What was wrong with that Bill, which was clearly pointed out by the Joint Committee, was that it was far too complex, and amongst the problems there were the civil law concepts. This is a criminal matter and is something that needs to be clearly understood by the people who have got to comply with the law. The great thing is that even between the consultation process this time and the report this time there has been a great sifting out to get to the simple issues. My personal view is that this Bill has resolved a lot of problems. It has got rid of the civil law concepts, it has got down to something nice and simple. The old common law talked about no rules of honesty and integrity. What we have now is this concept of impropriety, and impropriety is divided up into three different areas: good faith, etc, etc, which can cope with different situations. So we have got an advance on the old common law. There were not really problems with the old common law about no rules of honesty and integrity, and we have got down to something simple. So I feel very much that this is a great improvement. The other thing that comes from looking at this in a simple way is this: that we have the general offences here and then we have the separate foreign public officials offence. What comes from that is this: that when you look at the general offences, what you have for a jury is an issue as to whether conduct was improper. It is a jury issue as to whether it was improper. When you look at the foreign public officials offence, what you find is that Parliament has already decided what is improper. If you pay money to a foreign public official, in certain circumstances, that is ipso facto improper and it has been decided for you. So if we look at corruption as a whole now (because one of, perhaps, the disadvantages of this Bill is it is only concerned with bribery), what we have got is these offences where a jury has to decide what is improper, and then we have those offences where Parliament has already decided what is improper. As I say it is doing so in respect of the foreign public officials offence and it is also doing it in the old law, for example, with the Honours (Prevention of Abuses) Act, the sale of honours (?) and the electoral offences, where Parliament says: "If you do this, this is improper and you commit an offence". So I think it is a tremendous advance. If I am asked what criticism I have of the Bill, at the moment, it is this: I am afraid I find the drafting almost impossible. I was looking last evening at clause 2, which is dealing with the recipient, and I really could not work out what was being said about the test of good faith, etc, etc. The drafting, I am afraid, as a criminal lawyer, as opposed to a civil lawyer, in terms of case A, case B, case C; people such as F, P, R and, later, when it comes to the corporate, A, B and C, I find impossible. Maybe I am just not very good about it, except that I notice that the senior partners of Herbert Smith were having problems on this issue. So I would ask that the drafting of this Bill be reconsidered. I started to do the first two clauses myself but, I am afraid, time ran out and there was a lot left over at the end, and I could not do it. I am sorry that is rather a long answer.
Q77 Lord
Anderson of
Mr Nicholls: Yes, I was going to say certainly I will.
Q78 Lord
Thomas: I regret to say that an awful lot of the
criminal legislation that has been dumped on Parliament recently has contained
this type of case A, B, C, and F and D, and I find it equally as confusing as
Mr Nicholls. I wonder if I could refer
you further to question 2, because you were also asked: what have we learnt
from foreign experience? What question 2
is all about is obtaining advice and guidance from the authorities as to what
is or is not subject to the offences in this Bill. You will be aware, as you have some slight
connection with the Independent Commission against Corruption in Hong King,
that that organisation is prepared to give advice to a firm who is seeking to
find out whether a course of conduct would be acceptable. Similarly, in
Mr Nicholls: I think part of the problem with the drafting is that it is trying to pin, in every particular, what is corruption. I think you will add to the levels of prolixity if you have a set of exemplary situations by way of guidance as well. If you had a more cursory yet, in some ways, more clear way of drafting, then guidance examples might be more helpful, I think. The attempt here has been to try and pin the essence of impropriety down in some very prolix language.
Q79 Lord Thomas: I think you are missing my point. It is not so much that the Bill should contain the guidance but that, first of all, the Bill should contain something about written guidance or have a mechanism whereby people can seek advice, as happens in America and as happens in Hong Kong. That is the point I am making, not that the Bill should set up the guidance.
Mr Nicholls: I am sorry. I wonder what - and it is a question rather than a contribution - is the legal status of that guidance once it is given? Does it, in any sense, count as a barrier against subsequent prosecution?
Q80 Lord
Thomas: In
Professor Wells: My view is that it probably is unnecessary in the climate that we have in terms of prosecution. We have a number of regulatory bodies and my view is that the Bill is clear in what is prohibited. We do not pretend to provide an advice service for potential criminals in other areas; that is not part of our tradition. That is a different question, I agree, from whether there is some code of conduct, perhaps, to which reference could be made, but it seems to me that, given that the serious issues being addressed here are generally taking place within a corporate context, most corporations - and certainly the larger corporations - where this is going to be a serious issue will be developing their own compliance guides. I think, actually, it would be an unnecessary public expense, apart from anything else, to have that filter. That would be my view. I think that the United States context is both different, in terms of the way that the Act works and prosecutorial discretion works, but it is also different in that it was the first of those pieces of legislation that informed the OECD, so historically we have actually moved on in terms of corporate awareness of the importance of avoiding this kind of behaviour.
Mr Nicholls: One of the great problems is that all these issues are case specific and so there is a problem when you take, shall we say, a particular case, to call it an advisory body, that you may get a certain amount of advice but all factors cannot be taken account of. The other thing we have to consider is this, at the moment: if I, as a barrister, have a problem as to whether what I am about to do is ethical or not, I ring up the Bar Council and ask them. That applies in almost all industries now. One of the effects of, particularly, the anticipation of the corporate provisions of this Bill is that there is now a massive industry amongst lawyers in corruption compliance, and they are outside the lawyers who are advising; there are all the various bodies - the Chamber of Commerce, the Ethical Corporation, the Builders' this and the Construction that, and so on. All of them are providing advice, saying what is appropriate and what is not appropriate, and I think we should be able to rely upon our own professional bodies to not only give us advice but, also, help set the standards.
Q81 Lord Thomas: Do you see anything in the Bill which would make the receiving advice from your own solicitors or your own counsel or your professional body a defence?
Mr Nicholls: No, I do not, and I do not think it would be a defence. I was trying to think of a situation where you do have someone who has got advice and then finds him or herself, or company finds itself, prosecuted. It has arisen in some of the tax evasion/tax avoidance cases.
Q82 Martin Linton: The Fees Office?
Mr Nicholls: The great thing is that even if it might lead to a conviction it could certainly serve and would always serve as mitigation and insurance. It is not a complete insurance. The great thing is that the part that the various industry bodies can play in raising the standards is very significant.
Q83 Lord Sheikh: In certain overseas countries, of course, corruption is very rife. Would you like to comment on somebody putting up the defence: "Look, it is the done thing in that country, and I was just observing what the procedures are"? Would you like to comment on that? How do you see that defence being successful?
Mr Nicholls: We have to consider it from two points of view. Firstly, there is the point of view of the general offences. With the general offence, what really is the test is: what would be the expectation of a reasonable man? There is nothing to say whether the reasonable man would take account of the customs or tolerances, or so on, of whatever part of life you were involved in. When you come to the foreign public officials offence, what you have there is a test - if a person does something then it is improper - and you have got this provision of what is legitimately due. The question is, with the foreign, what would be legitimately due in the foreign public official offence? There is no provision there relating to the customs and tolerances of the foreign country. I have been looking in the last few days at the Australian Criminal Code 1995 as amended in 1995, and they have dealt very specifically with the foreign public officials offence; they had to change their law to deal with the food scandal. They seem to me to be the only other country that has adopted this test of whether a payment is legitimately due in the foreign public official's country. However, they do have a provision there to the effect that no account must be taken of the customs or tolerances in the trade or profession or country - whatever it may be. I think it may be worth consideration as to whether there should be a similar provision, one, as to our general offences and, two, as to our foreign public official offence.
Q84 Chairman: We are coming back to public officials, but, for the moment, perhaps, the reasonable test as applied to non-public officials overseas.
Mr Nicholls: Yes.
Q85 Chairman: Is that the gap?
Mr Nicholls: There may be a gap there, yes. There is a risk.
Chairman: We are coming back to it.
Q86 Lord
Mayhew of Twysden: Just going back, the American provision in
1977 made the point that it was the historic precursor of the OECD, I
think. It does strike one as being
refreshingly direct, practical and pragmatic, and I wondered whether there has
been any evidence of dissatisfaction as time has gone on in
Professor Sullivan: I believe the terms of that legislation, as you say, are far more straightforward than this current Bill. Indeed, there has been a degree of prosecutorial activity in the span of time since the Bill became an act - the 1977 Act. So I think it is fit for purpose in that sense; it is obviously used as an active tool by the American prosecuting authorities.
Professor Wells: It has been used increasingly with increasing penalties. In a sense, to go back and rewrite this so that it was in the same form as the Foreign Corrupt Practices Act would be quite a major shift. There is much more inbuilt institutional negotiation between the prosecution authorities and mitigation, in terms of sentencing as part of the process. It is, of course, familiar to us as common law derivative jurisdiction, but much of it is very different.
Q87 Mr
Djanogly: In the case of an English person bribing a
foreign person, would the reasonable person expectation be what was reasonable
in
Professor Sullivan: I think that is a very pertinent question and would be quite difficult to answer, I think.
Q88 Mr Djanogly: That is the key issue ----
Professor Sullivan: If you are looking at the general offence, even if it involves a foreign person who was accepting the bribe, it is the test of reasonable expectations for that person's office; whether a reasonable test would consider it in defiance of reasonable expectation.
Q89 Mr Djanogly: A reasonable person in the country where the bribe happens?
Professor Sullivan: One of the major problems of enforcement in corruption is cultural variables. It is very difficult to reconcile but I think it is at the heart of the matter. What the Bill does, and we touched on it, that, is as far as foreign officials are concerned, it says: if the law allows the payment or indeed requires it, then there is no offence, but that strikes at the heart of one of the major difficulties. If one can mention cases, in the Saudi arms contract, with huge commission payments, arguably, those payments were perfectly legitimate in terms of Saudi Arabian law, whereas, of course, the perception of that contract, with its vast commission payments was, by our standards, I would have to say, a corrupt transaction.
Q90 Mr Djanogly: The position is more straightforward if public officials are involved, because then you would go under a separate section (?), presumably?
Professor Sullivan: Yes, but even so I think many of the transactions that have caused some problems in this jurisdiction, in particular, for companies, do involve payments which, on the face of it, may be quite legitimate but in a different culture strike one, in certain terms, as outlandish payments, given the sheer scope of them.
Q91 Lord
Goodhart: You did say that the reasonable expectation
test applies to what would be the reasonable expectation in, say, the
Professor Sullivan: I would say yes. Quite.
Mr Nicholls: I think the reasonable expectation is meant to be the reasonable expectation of the juror who is a person of honesty and integrity. If ones take that test, then that should not be somebody in another country; it should be the juror - a person of honesty and integrity - and the juror will be judging what he thinks of the culture in another country. That is the idea. Whether that is sufficiently written into the Bill or not, I do not know. Maybe it is in the report. It is suggested that a lot of these issues arising out the Bill, particularly the reasonable person test, may have to be worked out by the case law, and may not be a proper way to approach drafting legislation, but it may be part of it.
Q92 Lord Thomas: Can I just put this, very briefly? One of the thrusts of the Bill is, obviously, to punish dishonest bribery in the domestic context, but when we get to the overseas aspects of it there is a policy of providing a level trading field. That is what the OECD is all about. Is there a conflict? Should these two things be in the same Bill?
Mr Nicholls: I have not quite followed the question, for a moment.
Q93 Lord Thomas: One of the aspects of this Bill is to conform with the OECD directive. That, really, is not about dishonesty; it is more about having a level trading field so that companies, from whatever country, whether it is the US or this country, in bidding for foreign contracts are not achieving an advantage by paying bribes. That is one policy aspect of it. That is rather different from the domestic bribery that we are familiar with, which involves that sort of domestic corruption, and so on. Are these in conflict? Should they be in the same Bill?
Mr Nicholls: I would not have thought that they are in conflict because an essential part of the general bribery offence is, in fact, to create a level playing field; it is to stop your competitor from getting an advantage over you by paying a bribe. So, basically, whether it is a general offence or whether it is a foreign public officials offence it is all about a level playing field.
Professor Wells: If I might say, it is a levelling up rather than a levelling down, so I do not see that as being in conflict. Just on that previous point, I did not read the Bill in that way, but if there is a query about whose reasonable expectation it is, perhaps there is a possibility, for the avoidance of doubt, for a clarification provision there rather than just leaving it at large.
Professor Sullivan: I think it is
clear that the OECD wants an international standard of doing business and that
of course will cut across the cultural variances, so the OECD would not be
sympathetic to the "when in
Chairman: I think we can have further discussion on this on question five which is the foreign officials point.
Q94 Earl of Onslow: I have one small point
to raise on this. In 1804 when the
Professor Sullivan: I think it is a problem which you can cannot get round. You have to face or confront it one way or another. We had it replayed recently in the Saudi arms contract with the figures almost as large, and of course the view was taken, and it is not an unreasonable view, that it was against the public interest for there to be any active prosecution by the Serious Fraud Office.
Q95 Earl of Onslow: And that defence is still allowed for?
Professor Sullivan: It is not a defence.
Q96 Earl of Onslow: Sorry, that decision not to prosecute is allowed for in this Bill is it?
Professor Sullivan: Not as such.
Mr Nicholls: Well, the position under the Bill is that the directors of the various prosecuting bodies decide or give their consent as to whether it would be a prosecution for bribery. There is some dispute as to whether the Attorney General should have a part in the consent or not. This is all really being worked out in the Constitutional Renewal Bill. The idea behind the Constitutional Renewal Bill is that the Attorney General in any case will be able to stop an investigation or a prosecution on national security grounds, so I think ultimately the issue is going to be decided in the Constitutional Renewal Bill. The question that arises under that Bill is how exactly the Attorney General exercises his or her consent, and how it is able to be tested as to whether it is a genuine ground for stopping an investigation or prosecution, namely national security, and if one takes the decision in the House of Lords in the BAE case there has to be a balancing process as to when it is national security and when national security demands a particular result. It is very difficult to resolve this at the moment. If there is a national security issue, and there are massive national security issues nowadays, somebody has got to make a decision about it. There have got to be proper protocols in place and there has got to be a proper oversight procedure that Parliament can operate. As I say, this ultimately is not going to be decided, I do not think, in this Bill; this is going to be decided in the Constitutional Renewal Bill.
Q97 Earl of Onslow: But the likelihood of the Constitutional Renewal Bill, considering there is only a year left of this Parliament to go, and it is not without the bounds of possibility there may be a change of Government next year and I put it no higher than that, getting on to the statute book is zilch, is it not?
Mr Nicholls: But let us suppose for example that the Bribery Bill is in place before the Constitutional Renewal Bill, it is difficult to believe at the moment that a director of, shall we say, the Serious Fraud Office or of Customs & Excise will not also be considering issues of national security, and there is no reason why there should not be protocols in place.
Chairman: We are going to come back to national security to some extent in question nine. I wonder if we could move on now to corporate hospitality, which I know is dealt with in the American legislation but here I think is going to be a matter for the prosecution authorities. Lady Whitaker, you wanted to ask this question.
Q98 Baroness Whitaker: The Bill is not explicit on corporate hospitality facilitation payments and so on, unlike the American Act which exempts facilitation payments, I fear regrettably, and provides a defence for reasonable corporate hospitality. Our Bill, I think, thinks that prosecutorial discretion can cope with offences which are arguably of a much lesser import. Do you think that is right and also, whoever chooses to pick this up, do you think it would be reasonable to use a halfway instrument such as an improved code of practice to deal with something like corporate hospitality, and I would add the commission system, which is sometimes legitimate if it is open and clear, but sometimes amounts to bribery, and this kind of authoritative guidance could even deal with where a reasonable person lives? Clearly in the Bill they do not live everywhere. The reasonable person seems to inhabit only where a British juror leaves, which I do not think is tenable as a proposition. Should all these aspects be dealt with in some way in the Bill, either within the guidance or more explicitly?
Mr Nicholls: I think once
again it comes down to the question of what is proper and what is not proper
and issues of good faith, impartiality and trust all arise, as they may be
appropriate in a situation. I notice
that Professor Horder found this a difficult question and if one takes the Bill
as it is, it is just left for the jury to decide on this basis of
impropriety. When do you go over the
top? If you take somebody out for two
weeks on the
Q99 Lord Anderson of
Mr Nicholls: Not every form of hospitality but I think a jury might come to certain very strong conclusions about the front row being occupied by the relevant police authority.
Lord Thomas of Gresford: If I may give a further example.
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
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
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
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
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 Processor 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
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.
Q120 Chairman: Since we are not going to get a reform of corporate liability is this particular provision worth having?
Professor Wells: I think we are going to have a reform because the Law Commission is now working on that.
Q121 Chairman: I know but we do not know when that is going to be brought into effect.
Professor Wells: We are not going to have it in time for this but I think it is definitely worth having because if we do not have it at all then you left with identification liability, which is where the OECD regards us as non-compliant, and it is of very limited use in this kind of situation. So I think we do need this offence but it needs to be a separate provision, yes, we do need it, but the form in which we have it at the moment it seems to me is going make it very difficult for the prosecuting authorities. How they establish who the responsible officer is and how they prove that that person, having identified that person, was negligent just seems to me to be an unnecessarily complicated provision.
Q122 Chairman: I suppose that if we did have a Bill on corporate liability anything that was not wanted in this clause could be subsumed?
Professor Wells: Yes presumably that would be part of it. You could have different provisions in different statutes as of course we do anyway. We do not have the vicarious route in many statutes.
Q123 Lord Goodhart: The history of the Law Commission does not suggest that there is at all a certainty of a general Bill coming forward to remove the identification procedure, does it?
Professor Sullivan: I think it is important that we have the identification principle operative in this Bill because corporations can commit the general offences are in the foreign public officials offence, but only on the basis of the identification doctrine, and this I think is almost not worth having. We have a consent and connivance offence for directors for corporate offences, but of course there will not be any corporate offences, more or less. The history to date is almost a blank sheet for foreign corruption, and so there we will have a provision which we can say to OECD, well, we have done this, we have put directors under scrutiny, but, in fact, there will be no convictions forthcoming because of the identification doctrine. I think that is not even worth having.
Q124 Lord Thomas of Gresford: In the whole history since 2001 there has been one civil action, has there not, where a corporation paid money over but there has been no criminal liability imposed upon any corporation?
Professor Sullivan: Yes.
Lord Sheikh: I cannot see this being a serious issue. For example, in my own business we need to establish whether it is vicarious liability in respect of injury or damage to third party property, but I do not necessarily agree with Lord Thomas's point about strict liability because I would not like to see strict liability. I think the onus of proof must lie with the prosecution or with the plaintiff really. I just wondered if he agreed with that?
Q125 Lord Mayhew of Twysden: If we keep the negligence provision in, negligent as in failure to prevent the crime, and the burden is on the prosecution to establish that, how should the jury be instructed as to whether to find negligence or not? Negligence normally is regarded as breach of the due standard of care but how is that to be established and by what means?
Professor Sullivan: It would be a very broad question very often involving a lot of evidence about practice across the industry and, as you say, in a typical tort case you have a specific incident and a fairly sharply focused question as to whether the defendant owed a duty of care, but here it would be was this particular company up to standard in terms of its anti-corruption code of practice, and that will involve, I would have thought, a lot of comparative evidence from companies in the same industry and in cognate industries.
Q126 Lord Thomas of Gresford: In medical negligence you look at what was the standard required at a particular point in time across the whole medical profession in determining what the duty of care is and whether it has been breached.
Professor Sullivan: Yes.
Q127 Lord Thomas of Gresford: So you are saying that, as drafted, the prosecution would have to establish what was the general standard of compliance across the whole field in order to see whether negligence had been established?
Professor Wells: I am not quite sure that is what it means because, as it is drafted, the negligence is the negligence in failing to supervise the person that has committed the offence, so it is within the context of the supervision of that employee or agent. One takes it as read that there was a failure to supervise presumably because the offence has been committed and then the question, as the Bill is drafted, would be for the prosecution to establish that that failure was a negligent failure on the part of the responsible officer.
Q128 Lord Thomas of Gresford: That might involve for example saying well you have got a code of conduct and your code of conduct is inadequate by industry standards or across the board.
Professor Sullivan: But even with a failure of supervision the company can raise the due diligence defence. That is my difficulty with this: there can be a finding of a failure of supervision ---
Professor Wells: --- that was negligent.
Professor Sullivan: --- that was negligent, but at one and the same time there is no liability ultimately because the company is able to show that it is of industry standard as far as these things go, which is very different from the medical negligence case.
Mr Nicholls: The very fact that an offence has been committed by an individual is evidence of inadequacy. The question is what is meant by negligence in this context and I think it is in FSA principle three, was in the E.ON case I think: "The application of reasonable care to organise and control its affairs responsibly and to have adequate management mechanisms dependent on the size and facilities of the company." So that negligence is defined, and it is defined as being in relation to its context.
Q129 Lord Sheikh: Would your recommendation be with regard to a regulated business like that regulated by the FSA that the FSA should incorporate something of what you are suggesting in their rules to make sure that there are rules within the organisation which adhere to what we are saying?
Professor Wells: I am sorry, you would have to repeat the question for me.
Q130 Lord Sheikh: Certain businesses are regulated, if you take financial services for example, there are certain rules which we need to adhere to, and I was just wondering whether you would suggest what is in the proposed Bill is written in the regulations of the FSA or any other regulatory body and then of course the organisation itself must set up the right filtering processes because obviously that would be very, very essential and that may perhaps be one way of ensuring that what we are saying is being adhered to.
Professor Wells: I think that is certainly the case, yes, and where you have got particular activities, and of course the FSA itself already has significant powers which it has recently exercised in relation to E.ON to make civil orders, so in a sense that is already happening, but I suppose what you have got here is a Bill that deals with every possible type of business activity, which can range from financial services, very large corporations, to relatively small players perhaps, or even medium players that do not fit in with one of those particular regulated fields. It will of course be the case that where you have got something which falls within something like the FSA that that would be your standard in terms of an appropriate compliance.
Lord Thomas of Gresford: In other words, you would not be corrupt if you had complied with the rules!
Q131 Chairman: I think the difficulty we have had before is that if you have got adequate procedures how then do you get negligence?
Professor Wells: Sorry, how do you ---?
Q132 Chairman: How do you prove that there has been negligence?
Professor Wells: I think that is the difficulty with the way that this particular clause is drafted and what it is aiming at, which is that there is an assumption that the prosecution is able to discover who this responsible officer was, and you might be in an industry that has very clear guidance as to always ensuring that there are people who are responsible for matters such as avoiding bribery but you may not be in that kind of industry, so it is an evidential problem for the prosecution. Then how do you show that it was negligent. Once you have got within the company and established who within the company should have been supervising the person who committed the offence, I do not actually think that the negligence issue there is the problem; the problem is establishing the evidential basis rather than the standard for negligence. It is my job to ensure that Professor Sullivan does not bribe somebody and I am negligent because I do not actually monitor him and apply a standard for that.
Q133 Lord Thomas of Gresford: Supposing you had monitored him, does the prosecution not have to have the burden under this clause as drafted of proving that the person who offered the bribe was on a frolic of his own or is that something that the defence would have to show that he was on a frolic of his own? It does seem to me that there is a problem in what the prosecution have to prove in the clause as drafted.
Professor Wells: I agree.
Q134 Lord Thomas of Gresford: That is right, if he was not on a frolic of his own, they would have to prove it.
Professor Wells: And even if he were on a frolic of his own, there should have been some supervisory mechanism which the company can point to (and I think that they should have that evidential burden because they will be familiar with their own procedures) to say we have done this, we have trained people, we have made it clear this is our culture. This of course is where the Australian provision is attractive because it talks in terms of authorising and permitting a corporate culture and so on, but if we are not going to go down that road then I think we need to make an assumption that if an offence has been committed within a company in the course of that company's business that the company cannot, as it were, disengage from that by saying, "Oh, but he or she was just doing it on his/her own", without actually having to show that they have effective compliance standards and that they are effectively monitored and that there is training and so on. The details of that would be contingent on the nature of the business and the size of the company but it is the proving of the negligence, yes, that is a step too far, I think, if this is going to be effective.
Chairman: Our colleagues from the Commons are going to have to go and listen to Prime Minister's Questions pretty soon. Lord Onslow, are you content on question five with the evidence that we have already had that there is going to be a very strict test about what is allowed and permitted by law in foreign countries?
Earl of Onslow: I think, frankly, the more I have heard the more complicated it gets. We are going to have to listen to an awful lot of other peoples view's, but I still in no way can see how can one can avoid these terrible conflicts in the essence of things which are both in the public interest: firstly: do not bribe people but, secondly, you could do the Louisiana purchase, to put it at its highest, and in spite of all the efforts and great clarity I still find that I cannot solve the Louisiana purchase problem.
Q135 Lord Thomas of Gresford: I just have one question arising out of this. Professor Sullivan, you say that paying commission to the Saudis in the BAE case would not be caught by the draft Bill under the "legitimately due" test. I think you said that. Is that acceptable?
Professor Sullivan: I think not
but I think it is at the heart of this problem.
As was just said, we have to do business with
Q136 Lord Thomas of Gresford: Sought after positions.
Professor Sullivan: Very sought
after and of course they are notorious conduits for the payments of large sums
of money which end up in
Lord Thomas of Gresford: You did talk about setting out protocols ---
Chairman: Lord Thomas, I really must try and move on because there is one quite important question which is number seven, and we have got one item of private business which we must deal with before all the Members of the House of Commons disappear. It is Lady Henig's point, question seven.
Q137 Baroness Henig: Can I just ask you about the extra-territorial reach of the draft
Bill and whether you think it is satisfactory and consistent with the approach
taken in other countries. Also the new
corporate offence catches any foreign company or partnership that carries on
"business, or part of a business" inside
Professor Sullivan: I would just
like to say briefly I think one of the major defects here is that foreign
subsidiaries, even wholly owned foreign subsidiaries of
Professor Wells: And the US Act does include that.
Q138 Earl of Onslow: If you have a situation whereby company A owns company B in a dodgy country, the main company appoints all the directors, it directly controls what they do, and those directors of the wholly owned subsidiary in the dodgy country can go around bribing officials from now until next Tuesday and we cannot stop them by this Bill; is that right?
Professor Sullivan: It may be an offence in the country of origin.
Q139 Earl of Onslow: But we are assuming in this case that the rule of law is not carried out with perhaps the diligence that Lord Bingham would carry it out with.
Professor Sullivan: In legal theory even the Bingham Inquiry accepted that the Rhodesian subsidiaries were wholly independent entities in law, and that tradition is carried on here. The legal theory is also the practical reality. There is no provision to bring within the net foreign subsidiary companies, so it is just a major hole in this legislation, a sensitive one, I know, because the Law Commission did think about it and decided to pass on it because of the general review of corporate liability.
Q140 Chairman: Mr Djanogly, we are going to have a special session on parliamentary privilege which was the next question that you were going to deal with, and I think we had better leave your question over to that. On the other hand, I wonder whether the three of you would like to look at questions eight, nine and ten to see whether you would like to give us your views in writing on those because we have not got time to deal with them now. If that is so, I would like to thank all three of you very much indeed for what you have been able to tell us. I think we will find it immensely useful in our considerations. Thank you very much indeed.
Mr Nicholls: May I just say because I was listening on the internet to the evidence of Professor Horder and Lord Mayhew had suggested on the "legitimately due" test for foreign public officials, the addition of the words "expressly provided by the foreign law". The Australian provision is "provided for by the written law of the state" There may or there may not be a difference, but there is a precedent for what Lord Mayhew had suggested.
Lord Mayhew of Twysden: I find that very reassuring and surprising!
Chairman: We have got a supplementary list of questions to send to Professor Horder so could we just check whether we have covered that or not? If not, we can always add another question for him. We are going to have to go back into private business so thank you all very much indeed for coming.