UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 430-iiiHOUSE 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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Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.
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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 |
Oral Evidence
Taken before the Joint Committee on the Draft Bribery Bill
on
Members present:
Mr Bruce George, in the Chair
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Goodhart, L. Lyell of Markyate, L. Mayhew of Twysden, L. Onslow, E. Thomas of Gresford, L. Whitaker, B. Williamson of Horton, L.
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Mr Alistair Carmichael Mr Geoffrey Cox Mr Jonathan Djanogly Linda Gilroy Dr Brian Iddon Martin Linton Dr Desmond Turner
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Witness: Rt Hon Lord Robertson of Port Ellen, a Member of the House of Lords, gave evidence.
Q141 Chairman: Thank you very much for coming. I am not going to waste time by introducing you because if anyone does not know exactly who you are they should not be on this Committee. In your many guises in the defence field from NATO to the MoD, et cetera, has the issue of bribery crossed your desk? Have you had to deal with issues relating to bribery either in NATO or the MoD?
Lord Robertson of Port Ellen: Of course. Defence is an industry made up of huge contracts. There are many small ones but there are also vast ones and therefore there is huge competition between countries and between companies to get them, and one would have suspected sometimes that there were bribes involved. In some cases one knew there were bribes involved. Whether in the Ministry of Defence or in NATO or afterwards I was well aware that it was going on. If I could quote one prime minister I met, when I asked him (this was after I had left NATO) whether he would appreciate having some model procurement process that in a way had the endorsement of NATO as a whole, let us say, whether he would welcome that because that had come up in some of the discussions I was involved in with Transparency International, he said instantly, "Yes, absolutely, because either we are involved in bribery, in which case we have got to clear it up, or we are accused of bribery and we want to make sure that perception does not exist". I think that is where you begin to see where the problem is. A lot of anecdotal evidence, a lot of intelligence evidence, was brought before me in various positions to indicate that things were going on. I found that both morally indefensible but also hugely wasteful and unfair in the international market place, and that is why I was pretty rigorous in what I did in the posts that I held where I had responsibility and where, when I came out, my experience with Transparency International and the forum that I chair of the American and the European companies to get a protocol comes in. I just think that we need to clear it up even if it is only to save taxpayers' money and to create a level playing field.
Q142 Chairman: Have you ever had to take a contract away or bust somebody who you had evidence was taking bribes? You may not want to name the persons but have you ever had that experience?
Lord Robertson of Port Ellen: I did not have any contracts to place in NATO. I may have run the largest and most successful military alliance the world has ever known but I did not place any contracts, although there were many people who believed I did. Certainly in the Ministry of Defence, yes, there were occasions when we stopped something going on because we had reasonable grounds to believe that corruption was involved in that, and that is the way it should be.
Q143 Chairman: If I remember correctly, your predecessor by one, two or three lost his job because of allegations of corrupt practices in a previous occupation.
Lord Robertson of Port Ellen: Let us say in my job in NATO, not in the Ministry of Defence.
Q144 Chairman: Not in the MoD!
Lord Robertson of Port Ellen: Not in the MoD. Mr Willy Claes resigned in circumstances where an allegation was made, which I do not think was ever proved, that his political party had taken payments.
Q145 Chairman:
Back
on message. It is widely regarded,
rightly or wrongly, that bribery takes place within the defence industry and
even within
Lord Robertson of Port Ellen: I think that we have got a remarkable record for honesty in pretty well every part of life, and I think it is built first of all on disproportionate penalties and secondly on a public service ethos that spreads throughout society and therefore I am not really conscious of any systematic corruption that is involved. I used to, especially in my NATO position, sometimes get frantic, obsessed with the level of corruption that seemed to be involved in government as a whole, especially in the emerging democracies, and that is a cancer that undermines people's faith in democracy and ultimately leads to demagogues taking over, and that seems to be acknowledged. I tried on occasion to say that the British model was not a bad one to follow because, even at the moment - and I agree with this draft Bill tightening up, clarifying the position or whatever - we still have big penalties. Local councillors who are involved in very small-scale bribery in relation to what happens in other countries have gone to prison in the past, so you have this double culture of the law on the one hand and also a public service ethos. When I was asked in my post-NATO life by Transparency International to chair this gathering of the American and European companies, I was very keen to do that. They said it would only involve one meeting but, like everything else, it has led on to a major industry. The Americans feel constrained because they have the Foreign Corrupt Practices Act which is a major imposition on their companies, and they see other companies in other countries not in any way subject to the same degree of discipline, so that is why we decided that we would move down the road of establishing a protocol that would apply to companies in Europe that would then marry up with the codes that apply in the United States of America, and I think we have been more successful in that than anybody dared to imagine at the very beginning, and that was largely due to a man called Professor Carbonari, who was once Chairman of Finnmeccanica in Italy and who was appointed by the European industry to take forward the agreement in principle in my grouping to establish these protocols. Having done that, there needs to be a body of law and that is why tightened and more specific British legislation is important, and I think that should also be encouraged in other countries but it needs the industry itself to sign up to these practices because legislation on its own will only ever catch a small number of people in the net. Thirdly, it needs governments to sign up to a pretty draconian view that they will not deal with companies who have not signed up to the protocols, and that is the next stage of where I hope this working group that Transparency International organised will take us, that we get the NATO countries, that is now 28 countries, to establish a policy that says that we know these protocols are out there and that governments in NATO will only buy from companies who have signed up to that. The combination of these three elements is what is required.
Q146 Chairman: And you think a few prosecutions will encourage les autres?
Lord Robertson of Port Ellen: Absolutely, and prosecution not just of the suspects. I used to argue with certain people in certain countries that corruption trials of their political opponents was not necessarily a way of establishing a standard. It had to involve some of the people at the very top who were known to be involved in corruption. This got me into some hot water, it has to be said, but maybe they did not understand my Scottish accent.
Q147 Baroness Whitaker: May we expand, Lord Robertson, on your mention of protocols? Can you tell us a little bit more about who you think should prepare them, government or the private sector, what principles they should enshrine and whether they should have some kind of legal status like the Highway Code or whether they should be voluntary? How do you see them?
Lord Robertson of Port Ellen: I think we need to crawl before we start running, and the very fact that all of the companies are now willing to get engaged in establishing this voluntary code is a big step along the line. If it could be accompanied, as I said, by the countries themselves saying that they support it and would basically blacklist companies which were not signing up to it, then we will have taken a big step forward. Whether you go down the road of making them legally binding is another matter. It might be difficult, given that it crosses jurisdictions. We would eventually like these protocols to apply not just to the European countries, not just to NATO countries, but we are already involved in discussing with some of the Russian companies whether they might want to be involved. After all, it is in the commercial interests of companies to be seen to be honest and to create a level playing field. You used to get as many complaints from companies and some countries about the distortion to the market place that came about by some of the unfair practices that were going on as you did from the people in the countries themselves, so I think we need to get the protocols and they need to trickle down not just to the big companies but to all of the companies that are involved in defence.
Q148 Baroness Whitaker: To bring the Russians on board would obviously be a great triumph. Perhaps your group has got something written down about the principles of such protocols which they could let us have. I do not want to ask you to take up our time enumerating the contents but it would be very useful to have those.
Lord Robertson of Port Ellen: Transparency International and also the European Defence Association, which drove it forward with Professor Carbonari, would be able to give you that.
Q149 Baroness Whitaker: Thank you. Finally, is it your view that there should be separate protocols for different sectors such as construction, defence, mining?
Lord Robertson of Port Ellen: There is already an agreement in the extractive industries and that was in many ways the model that we were working on because the extractive industries found themselves in exactly the same position of wanting to deal with corruption and being accused of corruption and their system appears to work pretty well. Defence, of course, covers a wide area. There is a lot of dual use involved in that as well, so it is not as simple and easy as it might seem, but even getting into the process of doing it and establishing it and educating on it starts to crack this view that it is somehow acceptable for these things to happen. It is knocking that acceptability down that is one of the biggest features. I had experience of one government having an open competition for a very big procurement contract and then finding that it got stopped and getting information from the company that messages had been received and documented that if a certain payment was made to a certain person who was close to a deputy defence minister the problems that were being created politically would be removed instantaneously. We are not talking about some third world country here; we are talking about the developed world as well, so there is a public demand and I think there is also an industrial demand for this.
Chairman: Will you give us the first letter of the name of the country?
Q150 Mr Carmichael: I have never had a problem with your accent, if that is any comfort to you!
Lord Robertson of Port Ellen: We were born about three miles away from each other.
Q151 Mr
Carmichael: The
Lord Robertson of Port Ellen: Yes, but you are not going to get international sanctions. You might look at some individual sanctions but that is not going to be particularly easy to do. They have to be tough and they have to be invigilated and people in the companies have to be educated about them. You might want to take that up with the trade associations about how they see that developing, but that was where I think the United States with company representatives were being slightly unrealistic in expecting that you could have some European Foreign Corrupt Practices Act in place very quickly. It might be that the European Union will take it over at some later stage. That would be quite a good idea, that it should not necessarily be NATO that would be the main vehicle. The European Union has legal powers that NATO does not have. What we did was to try and explore ways in which we could move forward with a change in culture that might end up with making sure that people faced serious sanctions. I think if individual countries could be encouraged to implement tighter laws than they have at the present moment with appropriate penalties, given the scale of some of the practices that go on, that would start to change that culture as well.
Q152 Chairman: I got into trouble when addressing OECD, and my comments were leaked, on who would want to miss being given the normal gratuity, but I argue that if some of the British become honest and Americans and Germans what happens if somebody does not join the club? What can one then do? Does it mean that honesty will be confined to certain countries who never win any contracts and should one give free rein to countries and defence contractors and governments who would laugh at the concept of integrity in the selling of arms? That is one of the more obvious problems that countries that signed up to the standards would have.
Lord Robertson of Port Ellen: I agree absolutely with you. It does seem unreasonable at the present moment that people are being penalised for being honest, but the alternative to that is not that everybody does it and you just multiply the bribes and you move forward in that direction. You have to try and drag it back. That is why I think that getting governments as part of organisations like NATO and the European Union themselves signing up to these processes is important. In the TI grouping we talked about a model procurement process, but the industry itself said, "Look: this is not really for us to do because that should be something for government, for politicians to do", and I quite agree with that except nobody at the moment is doing it. In a lot of countries therefore, maybe with new governments, usually with brand-new ministers of defence, the turnover of defence ministers generally is pretty high, which is why -----
Q153 Chairman: I think it is pretty high outside defence ministries as well.
Lord Robertson of Port Ellen: Maybe I will just apply it to ministers. If I may just diverge for a moment, people have asked what I did during NATO. I have got a formidable catalogue that I could give you of what we did, but what I did not do was take on the might of the chiefs of defence because they are in the Armed Forces usually from youth right through, and by the time they become chief of defence they know it backwards and they are faced with, as Robin Day said, a minister who is here today and gone tomorrow; all they have to do is outlast him, and in many recent cases her, and they get their way. You have to get an overall change of culture about how you do that and chiefs of defence have got a very substantial say in what they choose. If the Chief of Defence says to the minister, "A C130J Hercules is what they are referring to as 'heavy lift'", is the minister going to say, "You have got it wrong. These are, in terms of the Hindu Khush, basically toy aeroplanes and you need to have something very substantial to carry it"? It is about changing the culture and getting governments themselves to say, "We will adopt a practice", so it goes beyond your remit, but I think there should be an established way in which defence contracts are dealt with openly, transparently, where there is a public examination of, for instance, the counter trading involved, the compensatory schemes that go alongside. It is not a coincidence that a lot of what is offered in terms of offset happens to be a factory in the prime minister's own constituency if they have a constituency-based system. These are the grey areas that are very difficult to pin down. Stacks of money in a black plastic bag are relatively easy to deal with but offset programmes can be finessed in a way that is very difficult to see. If NATO and the European Union could establish some model procurement process, especially in the defence field, and if they said they would only deal with companies who had actually signed up publicly to the protocols laid down, then I think that would be a major step forward and it would help the honest companies and disadvantage the dishonest.
Q154 Linda Gilroy: Lord Robertson, I think you may in part have answered what I am about to ask but some witnesses have talked about the need to meet the UK's international obligations to create a level playing field but not to go far beyond them to do this but only just as otherwise we might end up reducing UK competitiveness. You said we have to crawl before we can run but does all of that add up to something that plays to a very low common denominator and makes the cake not worth the candle in writing these protocols? How do you avoid doing that?
Lord Robertson of Port Ellen: I do not really know what it means by saying we only sign up to the precise international obligations and not beyond that. It is a little bit like saying, "My expenses claims were within the rules".
Q155 Linda Gilroy: But what witnesses we have had have put to us is that it is all very well for us to do that but if other people are not really signed up to this then all we end up doing is reducing the competitiveness of the British defence industry. Do you think there is a danger of that, depending on the way you approach it perhaps?
Lord Robertson of Port Ellen: I think you have to do what is right anyway. Bribery is wrong and I do not think we should be in any way suggesting that it should not be done that way. That is why I believe that international action is absolutely right here in order to make sure that we are not going to be disadvantaged by it. That is the constant complaint of the Americans, that they are constrained by a draconian Foreign Corrupt Practices Act and nobody else seems to behave according to that kind of discipline, but it does not stop them getting contracts. It might stop them getting one or two contracts but I think they were right to reach out and say, "We challenge you to sort yourself out", and gradually that should be the best way of doing it. You cannot leave it at the Europeans and the Americans. We have to try and get the Russians, the South Africans, the Chinese and the others who are involved in this international trade signed up to it as well, and you will only do that if they pay an unacceptable price for being engaged in that kind of nefarious activity, which is why I think gradually getting governments, who have got everything to gain by being seen to be clean and being good, to sign up to it. The two sides of that I think will give us the protection.
Q156 Linda Gilroy: You have probably answered my next question but you might want to say a bit more about it. Are there national commercial advantages in being seen to be leading the field in anti-bribery legislation?
Lord Robertson of Port Ellen: I think so. If you look at the experience of BAE Systems, they set up the committee of inquiry under Lord Woolf and I think it was extremely good in its process, which was thorough, in its detail and in the recommendations that it made. I chaired a committee that they established. They decided to have a conference with all the different stakeholders involved from the NGO world but also from the companies and they asked me if I would chair it, and I must say it was quite an education because there were points where very simple dilemmas were put on the table for which none of us really had a clearcut answer. For example, if the stevedores on the docks of a country say they will not unload your ship unless a payment is made to their union or to their corporate organisation, what do you do? You say, "No. We will just let our ships lie there", or whatever, so it focused us on these micro issues as well as some of the bigger issues, and they have now tightened up to the point where nobody at BAE Systems will transgress the very tight lines that they have now clearly established and I have seen this in practice.
Q157 Linda Gilroy: Even to the extent of the stevedore one?
Lord Robertson of Port Ellen: I do not know how that one was dealt with. It was one of the questions left hanging in the air, but even the attending of lunches, the willingness to talk to representatives, people have now been indoctrinated completely on the outcome of the Woolf Committee's report and I think that has given BAE Systems quite a considerable authority now in the market place as decent honest brokers, and that will help them ultimately.
Q158 Linda Gilroy: You have touched already on what more NATO could do. You mentioned that the EU had legal powers that NATO does not have that could help it to take things further, to promote things, but will the proposed legislation help in that happening, whether through the EU or through NATO, and, if so, how?
Lord Robertson of Port
Ellen: It
is up to how the British Government takes it beyond its new tightened-up
legislation, but it is open to member governments to suggest that these things
take place. The common arrest warrant
was an innovation that people said would not work, could not work, was really a
nonsense on a European basis, that it would cross all sorts of different
judiciaries and different judicial systems and yet it is now working in
practice and has been very successful from the point of view of the
Q159 Lord
Thomas of Gresford: Am I right in thinking that we would be
fooling ourselves to suggest that we would be leading the way in anti-bribery
legislation by passing this Bill? Surely
the OECD have found
Lord Robertson of Port Ellen: It depends on how you look at it. By tightening the law it is a good example to countries whose laws may well conform with the letter of the OECD Convention but do not actually follow through into practice. If we have got a bad record for prosecutions in bribery cases, a lot of other countries fall way behind that as well, even though the letter of their law might be different. By saying and showing that we are going to tighten the law in accordance with that Convention and in accordance with the Law Commission's recommendations, I think it is another indication that we mean business and hope that other people will do the same.
Q160 Lord
Thomas of Gresford: This is a building block, this Bill, is it
not, towards fulfilling our obligations, and in fact there has only been one
successful prosecution which resulted in a suspended sentence under the 2001
provisions which were intended to fulfil our obligations, whereas other
countries, like
Lord Robertson of Port Ellen: I am not here to advertise the Government. This is a Bill that is there. It arises not from a government manifesto commitment but from a Law Commission report and it is a worthy contribution to what I was saying before you came in, Lord Thomas, about the fact that you need to have different elements here to change the culture, to have other governments willing to lay down standards on the companies that are supplying them with defence equipment. It is one of the building blocks about changing the general culture in relation to corruption as a whole and in the defence industry where the contracts are very large and get a lot more coverage and a lot more attention than they do in some other fields.
Q161 Baroness Henig: What are your views then in general of the Draft Bribery Bill and the offences it creates and what changes, if any, do you think are needed to make the law clear, predicable and fair?
Lord Robertson of Port Ellen: I am not an expert on the law or the legislation. I see it as being a really positive contribution to tightening up the law in this country but that in itself is not going to sort the bigger problem that exists here, especially in defence. It is going to require action by governments and by international organisations as a whole in order to make sure the culture changes completely and what can often be seen as being retained just now becomes completely unacceptable. This is a building block following on learned recommendations that seem to me to be pretty good in establishing what the standards are and tightening up what we have gradually accepted here. By and large I think we have got a pretty reasonably non-corrupt tradition in this country and we want to maintain that and we want to toughen it and we want to make sure that anybody who breaks that culture is punished appropriately.
Q162 Baroness Henig: So what else do you think could be done or should be done to tackle bribery, given that we are going in that respect beyond legal issues? As you say, we are talking about cultural expectations, business expedience, limited enforcement resources, commitment globally, all the problems that you have referred to, so what else apart from this Bill could be done?
Lord Robertson of Port Ellen: It may be useful if a lot of companies did what BAE Systems did, which was to say, "Look: we are being attacked for things that happened in the company some 25 years ago" - that is what the accusation in relation to the Al Yamamah contract was. We are talking about things that happened during the time when Mrs Thatcher was Prime Minister - "so therefore we need to establish at the moment what it is we need to do as a company to help our reputation but also to help and assist our executives in the future". If you look at the outcome of the inquiry, which was accepted in its entirety by the company, and I hold no brief for that; I am not engaged with them at all, if you look at what was said in the report independently by Lord Woolf and his colleagues and the fact that the company accepted it all and has got a programme of education within it, that kind of example in other companies I think would be very useful indeed.
Q163 Chairman: Thank you very much. I am so inspired by what you said about clearing up defence contracting I am now going to write to the Chairman of the Security Industry Authority to see if any of the principles could be transferred there because there is a dirty pool taking place.
Lord Robertson of Port Ellen: I hope you are going to chair meetings, and do not suggest my name, please.
Q164 Chairman: Lord Robertson, thank you very much. We really appreciate your attendance, and if we have any further questions can we impose on you if we drop you a note?
Lord Robertson of Port Ellen: Absolutely.
Chairman: Thank you.
Witnesses:
Mr Gary Campkin, Head of
International Group, Confederation of British Industry, Mr Andrew Berkley, Adviser, International Chamber of Commerce
Chairman: Thank you very much for coming. We appreciate your attendance and we will kick off with a question for Mr Djanogly.
Q165 Mr Djanogly: Good afternoon. The trait on bribery often focuses on the number of prosecutions, or perhaps I should say the lack of prosecutions. Could you please start by giving us some idea of the extent to which you feel this is a problem, that bribery is a problem in relation to UK businesses and the amount of bribery, and if you have any figures that would be helpful, and also the extent to which you think that this can be blamed on weaknesses in the current legal system?
Mr Campkin: Good afternoon. I think I would echo the comments of the previous witness and say that in general terms the reputation of not just this country but also the business community is very high in terms of honesty and integrity. It is one of those British values which are the hallmark of the society in which we live. You rightly point to the fact that there has been some criticism, but even by indexes which seem to measure the degree of corruption, Transparency International, for example, the United Kingdom the last time I checked was 16 out of 180, ranking ahead of other OECD members like the United States, France, Japan, Spain, Portugal and Italy, and I think that makes the case. The Government has also recognised that British business has a good track record in terms of honest business practice and integrity in the way it operates around the world.
Q166 Mr Djanogly: Do you think there are problems within the existing law that need to be addressed?
Mr Campkin: The CBI is on record and has
been on record for a number of years now, including the last time a draft Bill
came before Parliament for pre-legislative scrutiny, to say that we support the
modernisation of
Q167 Mr Djanogly: Do you think the Bill is the right way to be going about it? I say that in the widest sense to start off with. Do you think that Parliament should be looking at other ways of combating bribery and corruption and is this Bill the right way to go ahead in your view?
Mr Campkin: The right legislation is certainly one of the right ways of going about it. I do not know yet whether members have had the opportunity to review the CBI's written evidence. It was submitted yesterday because we needed to ensure that we had full support from our members, both corporates and law firms, but in that we make a number of comments related to the draft Bill which we believe needs some quite detailed thinking and improvement before we can give it unqualified support, so yes to the concept of a Bill but probably in its current form the draft Bill needs quite a lot of work and thinking.
Q168 Chairman: Ms Robson, you represent smaller business. Would you care to add anything?
Ms Robson: Generally the FSB is supportive of a legal framework around bribery which is clarified and consolidated, certainly as far as the small business sector is concerned. I think our interest in this is a little more focused on specific aspects of the corporate events in particular, mainly because the vast majority of our members operate in what are deemed to be quite low risk sectors, and also the fact that only a small percentage, something around six per cent, of annual sales of our membership go on countries outside the UK. For that reason we are very much interested in the impact that the Bill has on small businesses across the board, certainly in high-risk sectors, but we only have a very small proportion of our membership that is involved in extractive industries, for example.
Q169 Chairman: Mr Berkley?
Mr Berkley: I think it might be useful to
the Committee to bear in mind for analytical purposes that we are really
talking about two arenas. There is the
international arena, which in action has been led by the
Q170 Chairman: If your members or those you are aware of in British industry are dealing with American companies does it make their response rather different knowing that legislation in the United States is probably stronger than legislation in this country or in many other countries?
Mr Berkley: I would challenge that, sir,
on the assumption. I do not believe that
the present
Q171 Mr Djanogly: Can I come back to Ms Robson's response? You said that this is not going to apply, you think, to the majority of your members. Are you implying by that in the international field, because, of course, the Bill applies to domestic bribery, for instance, in terms of hospitality and so forth and I would have thought that it would potentially apply in some form to a very large proportion of your members, so would you like to readdress the question?
Ms Robson: If I could clarify what I said, this absolutely will apply to all of our members, but what we would like to do is make sure we work with the MoJ to minimise any unforeseen impact it might have in relation to administrative hassle or burden. Absolutely it will apply across the board. I simply make the point that a lot of our members are not operating in those higher risk sectors where, as has been pointed out, it can be a particular issue.
Q172 Mr Djanogly: What is high risk?
Ms Robson: High risk of corruption.
Q173 Chairman: Mr Berkley, you were very much involved with the OECD Convention in the early stages. Did you get the impression that people in other countries thought that our record was not as good as others or did not have the legislation necessary, and did it cause any difficulties for you?
Mr Berkley: No, sir. The British delegation in fact was one of the leading delegations in the production of the OECD Convention. It is fair to say that the impetus for the OECD Convention came from the United States for precisely the reason that has been mentioned, that American companies said that they were at a disadvantage because they had the draconian provisions of the Foreign Corrupt Practices Act ruling them that was not ruling "them of us over there", so the impetus came from it but once the thing was properly on the table in the OECD the United Kingdom was a leader in that negotiation.
Q174 Lord Mayhew of Twysden: Mr Campkin, you say in your written evidence, for which thank you, in paragraph 3, "We strongly support the Government's objectives in this area as long as the proposals are simple, easy to understand and able to be implemented by companies. This requires well defined offences and appropriate defences which criminalise conduct appropriate for such treatment", and, "It is equally important that conduct not intended to be criminalised remains legitimate and is not inadvertently caught within the ambit of the new offences". How do you think the Bill measures up to that requirement as you expressed it, and does it in that context strike a fair balance between raising the standards expected of businesses and preserving their competitiveness?
Mr Campkin: It is in our view a draft Bill which has significant problems because, as we go on to explain throughout the rest of the document, in areas of the general offences, in the new specific foreign offence, and indeed in the new offence of corporate liability, they are issues which could lead to activity which is perfectly legitimate and legal being caught up as a criminal act, and this ranges from lack of mens rea, which we believe is not a right position to have for a criminal offence, to a lack of a defence in the foreign clauses which the Law Commission had and we cannot really understand why the draft Bill omits, but the effect of that is very significant on business and we would want to see that defence replaced in the final piece of legislation which comes before Parliament. Finally, in the corporate offence there are a number of areas where basically some of the defences that are proposed are rendered in effect meaningless, so we believe there are some structural deficiencies which really need to be addressed and we hope this Committee will focus on those.
Chairman: We certainly will. We have only just had the memorandum and we will look at it, I promise you, very carefully.
Q175 Earl of Onslow: Before the war when Lloyds was reinsuring, say, the Shanghai market, on the slip it used to say "Commissions as local custom", which could probably triple or quadruple the premium which Lloyds' underwriters would take which was given to agents. Is there not a great difficulty with this concept of bribery overseas as to where legitimate agents verge into downright people with their hands out yelling, "Buckshee"?
Mr Campkin: I think part and parcel of
the problem with a term like "agent" is that it has become very
value-laden. It is a legitimate part of
doing business and we need to recognise that.
Perhaps I could suggest that the interesting part of your question
revolves around trying to ascertain what the law is in other jurisdictions and
this goes back to the points I was making to Lord Mayhew about the reasonable
belief defence. For example, in the
Q176 Earl
of Onslow: We are back, are we not, to the example I used
last time of Tallyhoc(?) who trousered a third of the money voted by Congress
to the
Mr Berkley: Chairman, I might be able to assist the questioner if I may. I first mention the export credit guarantee provisions of one of our partners in the European Union which some years ago had a clause in it which said, "As a condition of this insurance the insured guarantees that fees or commissions are not in excess of seven per cent". This was a clause in the export credit guarantee provision. I will not say what language it was written in. Secondly, as regards the question of agents and their proper remuneration, there is a vast amount of material in the United States where in fact the Department of Justice lays down guidelines as to the proper remuneration of an agent, what does he do for the money, how is he remunerated, what is that remuneration precisely related to, is it related to the amount of work he does or to the value of the contract or to what other criteria. There are a large number of critical steps that one can go through to ascertain this. Certainly, when this Bill, we hope in an amended form, comes before Parliament, industry will expect the Government to spell out this sort of thing, to spell out what are the standards by which we should judge agents, how should they be remunerated so we will not cross the guidelines. We will expect the Government to do that.
Q177 Earl of Onslow: And our Government provides nothing like that now?
Mr Berkley: Nothing like the
Q178 Mr Borrow: Perhaps we can move on to an issue that has just been touched on to do with the new corporate offence which is referred to in clauses 5 and 6. I would be grateful for your views in respect of the need to strengthen corporate criminal liability and whether this new corporate offence actually deals with that. We have had various papers in as a committee, some of which have said they are happy with the proposal, some have said it is too narrow, some have said it is too broad. I would be grateful for your comments, both on the need to strengthen the law and whether the proposals under the draft Bill actually do that.
Mr Berkley: To start the answer I will say that this is a complicated question. First of all, as we understand it, the Bill is not introducing corporate criminal liability for bribery. That already exists in the common law. The offence in the Bill is "failure to prevent bribery". That is a different thing from liability for bribery itself, and, of course, it is the law today that if it can be shown that the directing mind of a company - its chairman, its managing director or whatever - directly caused the company to give a bribe, that company would be guilty of bribery. One draws that distinction first. As regards what is introduced, as I say, this "failure to prevent bribery", we regard that as a draconian standard because "prevent" means "prevent". It means to stop something absolutely. It does not mean to do your best to hinder it or to try and struggle against it or, in the words of the OECD Convention, to "combat it"; it says "prevent", so we see that as an extremely high and draconian standard and we think that the word "negligence", as used in that particular part of the Bill, must be further defined.
Q179 Mr Borrow: Is that the view of all three representatives?
Ms Robson: We are quite open and
accepting of the need for a new corporate offence to put the
Mr Campkin: I would endorse Andrew Berkley's point. We have very significant concerns indeed about the creation of a criminal offence based on negligence. We believe that that is undesirable and indeed unacceptable. We also think that as drafted "failure to prevent" the bribe could mean that even if a business took every single precaution under the sun and the act occurred that could trigger some sort of corporate liability. That cannot be fair, so that area needs to be looked at. There are also some technical issues related to the definition of "responsible person". Using terms like "manager" and "secretary" cover a very wide range of people within a company and it goes back to some of Andrew's comments about the controlling mind of the corporate. We need to look, I would suggest, again at that. Then, indeed, the "adequate procedures" defence is in real danger of not recognising the realities of business. In short, the answer to your question is that we believe that while conceptually we do not have a problem with an offence of this nature, although we would have preferred it to have been included within the work that the Law Commission is undertaking on corporate liability more generally; this is a project that is now under way, if a Bill is to include such an offence it needs to be workable and it needs some significant improvements to the language in the draft Bill.
Q180 Baroness Whitaker: How do you compare then these provisions with the Health and Safety at Work Act, which more or less turns negligence into a criminal offence? You can certainly be accused of failure to prevent an accident and you do not have to have a mens rea either. If you just have such bad systems that your work people die, that is it, you can be charged. Do you see any comparison?
Mr Berkley: Professor Horder has discussed this, I do not whether before you. He calls it the snail in the can of beans offence.
Q181 Lord Mayhew of Twysden: Ginger beer.
Mr Berkley: The snail in ginger beer is negligence, but we will leave that aside if we may. There is room, I agree, for absolute offences of the nature of a snail in a can of beans because that is the only way of regulating that thing in the mass. However, we are not talking here about the faults of mass production. We are talking about the actions - we are at any rate - of individuals and, in our particular case, of individual executives. That is a different thing from cans on the shelf in Tesco, and therefore the question of mens rea does arise and I think Professor Horder has actually drawn this distinction in his discussions.
Q182 Martin Linton: I just want to follow up, Mr Berkley, on what you say is a draconian approach. I understand that the inclusion of this offence was as a result of the Woolf report on BAE Systems rather than the Law Commission, so what was it about Lord Woolf's report that you think went too far?
Mr Berkley: The Law Commission founded
its reasoning on two things. One indeed
was the Woolf Report. The other one was
an expressed wish to further what the Law Commission called the spirit of
Q183 Martin Linton: But there is an "adequate procedures" defence, is there not? Is that not sufficient?
Mr Berkley: The 'adequate procedures' defence has been, we believe, stripped of effectiveness by the modifications put in by the departments to the Law Commission's final proposal.
Q184 Mr Cox: But there are many examples of similar regimes to which clause 5 is going, are there not, such as the money-laundering regulations, for example, which make it an offence not to maintain adequate procedures for the purposes of preventing money-laundering? There are many statutes in trading standards which make it an offence not to carry out due diligence and take all reasonable steps, otherwise, you become a participant in the offence under trading standards. What is particularly different about this clause, provided 'adequate procedures' are defined in guidelines and rules and so on? What do you find different?
Mr Berkley: I tried to give an answer to that, I think, to Baroness Whitaker where I drew a distinction between, if you like to call them, the 'hygiene' offences, that is to say, keeping proper records to show that there has been no money-laundering or making sure that the tins on the supermarket shelves do not have snails in them, that sort of thing, where you do need that sort of wide-ranging mens rea-free offence, and the offences we are talking about here which are the conscious management actions of commercial organisations.
Q185 Mr Cox: What this offence is getting at is a culture. What this offence is, effectively, asking British companies is not to maintain a culture, and to make certain there are adequate procedures in place so that a culture cannot grow up, of illicit bribery. Now, that is a perfectly reasonable thing to ask of a British company, is it not?
Mr Berkley: It is a perfectly reasonable thing to ask and we think it is an appropriate question, but what we are saying is that the answer given in the draft Bill is wrong.
Mr Campkin: Perhaps I can add just one comment to that, Chairman, and that is to go back to what I was saying before about the issues related to even if a company had done everything in its power, had done all the due diligence, had had all the procedures in place and something went wrong. The 'adequate procedures' defence, as drafted in the draft Bill, would not provide for any sort of defence at all. This goes back to intent and we think that it is wrong that a corporate should be held criminally liable when there is no intent, so I think again it is a question of going back to the issue. It is, as Andrew said, something which the Law Commission itself has recognised in its own work and its own evidence. If I may, Chairman, make just one other point, if we look at clause 6 and some of the supplementary provisions, we are concerned that the drafters seem not to have understood some of the complexities of modern-day business structures. For example, joint ventures, which can operate in a wide range of forms and functions with varying degrees of control, banking syndicates and so on, where you cannot have control over the entity, is it right to expect criminal liability to hold in those circumstances? We would argue not.
Mr Cox: What I think you are avoiding, forgive me, and what you are not taking on board is that there are examples of this in the statute law and have been for many, many years and companies are put under duties of due diligence. If they exhaust all reasonable steps that could have been taken to prevent the mischief which the statute aims at, then they will be exempt from conviction, immune from conviction. If they do not, then they will be convicted. It exists in numerous examples of the statute law.
Lord Thomas of Gresford: And the burden of proof, of course, is not beyond reasonable doubt, but on a balance of probabilities where it is an offence, as here, so to suggest, as Mr Campkin did, that you can take all the procedures that you can think of and still be found guilty is nonsense; that is not what happens.
Mr Cox: I think it is a bit extreme. It may not be your best point.
Chairman: Obviously, this has to be discussed.
Q186 Mr Borrow: I would just like to come back. I am still a bit puzzled because it seems to me that, if you have got a defence company trying to get a contract and the worry is that somebody out in the country that you are trying to sell stuff to is trying to secure that contract to make sure that they get their commission as a salesman, then they must have access to somebody to do the bribing with. Now, if you have got proper procedures in place and proper checks and balances, that will not happen, so that should be straightforward, but what you seem to be saying is that, because of joint ventures and various other complicated systems, there could be a pot of money somewhere that could be used which the company itself did not have full control over and, therefore, they could not be properly blamed if that bribery took place. Have I got it wrong?
Mr Berkley: I would make two comments on that, sir. The first one is that you have put your finger on the most powerful part of the Foreign Corrupt Practices Act of the United States, which is not the prosecution, it is the bookkeeping requirements, and that is the thing that touches every American corporation immediately because the Foreign Corrupt Practices Act has very, very powerful bookkeeping requirements. The other point, and let us take a consortium developing an oilfield, one of the companies is the operator and actually does the work, the others own shares, there is an operating committee, rather like this, sitting round and it votes and the operator has to do what the operating committee decides. Now, the point we were making is this: that the criterion in the Bill is 'rendering services'. Now, there is no doubt at all that the operator in an oilfield renders services for all the interest owners, but those interest owners do not control the operator, all they have is their percentage vote on the operating committee, and what we are saying is that it is wrong to make them potentially criminal liable for an operation which they do not control.
Chairman: I have looked at your brief and you are obviously very concerned about these issues. You may want to expand upon your brief and we would be delighted to accept any further elaboration.
Q187 Earl of Onslow: You answered just now, Mr Berkley, by saying that we had identified a problem and something had to be done about it, but we had done the wrong thing. Would you answer your own question as to how to do it then?
Mr Berkley: I think that you should make the standard of care and the standard of negligence in the prevention of bribery clause or, as we would prefer it called, the 'combating of bribery' clause rather like that in corporate manslaughter where there is specifically a degree of gross negligence. It is also in the Ministry of Justice's own explanatory document which says that it is aimed at top management, the deciding factors in a company, and we are suggesting that you be moved from a kind of absolute prevention thing, which it stands at at the moment, to something more like corporate manslaughter.
Q188 Lord Goodhart: My question here is question 8, which is to explore the desirability of widening the offence. Now, is it not the case that the OECD has been extremely critical of us in connection with its section on liability of legal persons? It says that Article 3 of the Convention requires "effective, proportionate and dissuasive sanctions upon legal persons", and that is of course companies, "for foreign bribery, including monetary sanctions".
Mr Berkley: If I may quote the Law Commission where they discuss this very point, they discuss the comments which were made by Transparency International and the comments made by Professor Pitts, who is the Chairman of the working group in the OECD, as I am sure you know, and the Law Commission finishes their wide discussion by saying, "We reject as unsustainable the view that England and Wales is in breach of its obligations under Article 2", which is the relevant Article, "of the OECD Convention", so the Law Commission certainly came to the conclusion that we were not in breach.
Q189 Lord Goodhart: I was referring to Article 3 rather than 2.
Mr Berkley: Please could you remind me of the provisions of Article 3 and I will try and answer you?
Q190 Lord Goodhart: Article 3, what they say is that it requires, "effective, proportionate and dissuasive sanctions upon legal persons for foreign bribery".
Mr Berkley: This varies. The OECD Convention works on the basis of
functional equivalence. That is to say,
it is not the form of the law of a country that matters, it is its effect at
the end of the day. Thus, for instance,
in
Q191 Lord Goodhart: Would you agree that in fact the best way of getting a company to stop bribery is to penalise the company for acts of bribery carried out by someone acting on their behalf?
Mr Berkley: Well, that is not within the purview of the present Bill.
Q192 Lord Goodhart: Do you think perhaps it should be?
Mr Berkley: I think that should await the study which is going on in the Law Commission now, and in that we agree with the CBI.
Q193 Lord Goodhart: So you think that, if the conclusion is that, then you would accept that?
Mr Berkley: We would have to look at the arguments at the time. It is a very big question, as I am sure you know much better than I do.
Q194 Lord Goodhart: You refer to corporate manslaughter and say that corporate manslaughter should require gross negligence before a company could be penalised for it. Now, of course that is because, is it not, manslaughter is a crime which, by definition, requires gross negligence before anybody can be prosecuted for it?
Mr Berkley: Yes, that is an element of the crime of manslaughter, as I understand it.
Q195 Lord Goodhart: Bribery is quite different from that because somebody has to be committing the crime of bribery.
Mr Berkley: But we are talking here about the prevention of bribery. We are not talking about bribery itself, we are talking about a different thing.
Q196 Lord Goodhart: But you cannot call on clause 5, unless somebody has committed an act of bribery on behalf of that company.
Mr Berkley: Indeed, and this is one of our most significant worries about the provision, as now drafted, because you can have a company technically guilty under the present Act of failure to prevent bribery when nobody has been found guilty of bribery or even charged.
Q197 Lord Goodhart: I think there would have to have been an act of bribery, otherwise there is no possible prosecution ----
Mr Berkley: As I say, this matter is spelled out in our submission, in our written evidence.
Q198 Mr Cox: Why should it depend on the random accident as to whether he was accessible to the jurisdiction? If you could prove that there had been an act of bribery, if you could prove it was in connection with the company's affairs, if you can prove that this man was, in essence, performing services, whether he is charged or not is simply a random matter dependent on whether the police can lay their finger on his collar.
Mr Berkley: You take our point completely which is set out in our evidence. We say that, if the court, seized of this matter, decides, beyond reasonable doubt on the evidence before it, that an act of bribery has taken place, then the matter will follow. That is precisely what we are saying.
Q199 Mr Cox: Well, that is in the Bill.
Mr Berkley: No, it is not.
Q200 Lord Thomas of Gresford: I do not understand the point that is being made because clause 5(1) requires it to be an essential element of the offence of failing to prevent bribery that a person performing services for, and on behalf of, the company bribes another person. It has to be proved; that is part of the offence, so that is the sine qua non. Unless that is established, there is no corporate offence at all.
Mr Berkley: I think the Bill makes quite clear that it is not a necessary ingredient of the offence of failure to prevent bribery that somebody be either convicted of bribery or even be charged for bribery. I think the Bill says that in express language.
Q201 Mr Cox: No, certainly not, but they have got to be satisfied that that element is made out in this charge. It may not be that somebody has been convicted, but it would be necessary to prove in the charge against the company that somebody had actually bribed, otherwise there is no conceivable offence committed by the company.
Mr Berkley: We agree with that and we say that that satisfaction should be measured as a finding beyond reasonable doubt on the evidence before the court, and we would ask that that be explicitly stated in the provision.
Mr Cox: But it would not have to be proved beyond reasonable doubt. There is no question about it; it is an essential element in the criminal offence, the charge.
Q202 Dr Turner: Now, 'negligence' means different things to different people. Do you think that there is more guidance required for businesses on what actually constitutes 'negligence' or 'adequate procedures'? If so, who, do you think, should prepare that guidance, what principles should it enshrine and what status should it hold?
Mr Campkin: Well, it is very clear from what we have intimated at already that we believe guidance would be necessary. The Law Commission has indeed recognised that itself and we support that view. I think that the important issue here is to recognise that that guidance should accompany the Bill and should be seen as an important part of its interpretation, so there has to be some clear and authoritative guidance as to what constitutes 'adequate procedures'.
Q203 Dr Turner: Would you see this on the face of the Bill, in a Schedule or whatever?
Mr Campkin: I think it needs to be incorporated as part of the overall package to give companies certainty.
Q204 Earl of Onslow: Surely, adequate procedures, you know them if you see them, like negligence in courts when they are given evidence of what has happened? They say, "Well, it's obvious", or "It's not obvious that there has been negligence". It is something which comes in front of you like that and we know what it means in common law and we know, therefore, that it is up to the jury to decide whether there have been either adequate procedures or not or negligence or not, but you do not need to have guidance to know whether something works or not, I would have thought.
Mr Campkin: I think, with respect, that you do because, as I was saying, what business needs is certainty to be able to see from a simple and easy-to-understand piece of legislation how they can apply it in practice, and the best way, in our view, of doing that is to ensure that, first of all, the Bill itself is ship-shape and Bristol fashion and then, secondly, to ensure that there is the guidance which enables companies to do what they do a lot of, which is to ensure, through due diligence, through codes of conduct, through codes of practice, that they can match the requirement, and I would have thought that that is an absolutely important point of departure in terms of the law.
Q205 Earl of Onslow: But 'due diligence' is not defined, so, therefore, why do you have to define 'negligence' or 'adequate procedures'? You know what due diligence is, do you not, when you see it?
Mr Berkley: I would merely once again refer to the United States where the Department of Justice issues red lines, guidelines, for companies and they are quite compendious and there is further facility under the Foreign Corrupt Practices Act that a company which is in some stage of doubt can go for a ruling from the Department of Justice as to whether the proposed course of action is likely to infringe the Act or not, so it is quite possible for a properly constituted administration or administer of policy to be set up to provide answers to this sort of question.
Q206 Lord
Thomas of Gresford: That was precisely the point I wanted to ask
Mr Berkley about, and he has just
mentioned it, because in
Mr Berkley: I would say personally that, if the Bill should be passed in what, we think, is its present, rather draconian form, we would very much need some such point of reference as you are suggesting.
Q207 Chairman: This is a question for Ms Robson. Professor Horder of the Law Commission told us in written evidence that, in implementing any bribery law, care would need to be taken to avoid businesses having to deal with unnecessary (underlined) red tape. How can this be avoided?
Ms Robson: I think I would certainly agree with some of the comments that my colleagues have made about defining very clearly what is meant by 'adequate procedures' to give particularly small businesses a clearer steer as to what are the necessary steps to take in their business in order to comply with this legislation. Is it enough to merely have had a conversation with a colleague or to have factored certain proposals into a staff handbook or is there a need for a written and documented evidence trail? For small businesses, that obviously begins to get more difficult when you have only got a handful of employees and you are very tight for time and resources.
Q208 Baroness Whitaker: This is a question initially, I think, for Mr Berkley, and it is the question of subsidiaries and joint ventures, syndicates, which the ICC, I think, thinks are not properly covered by the corporate offence. Perhaps you would like just to clarify that and, if there is a problem, do you think the Bill should be amended and, if so, how, or is it another matter for guidance?
Mr Berkley: I would like to draw a distinction, if I may, between syndicates and joint ventures on the one side and subsidiaries on the other. A point on joint ventures and syndicates is quite simply that the company may not control the actions of those entities and, therefore, we say that it is wrong that they should stand in danger of being found criminally liable for the actions of those entities, and there should be a modification in the Bill where, for example, in contracts for the exploitation of oilfields and so on, there is nowadays always an immense clause which says that the operator shall not commit bribery and he shall account for all his spendings with respect to local officials and so on, and it goes on, under the influence once again of United States' lawyers, for pages. There is a very close contractual control on entities like the operator and we would say that, having put in place contractual control, that should be sufficient discharge of the obligation to prevent bribery in the terms used in the Act. This is once again recognised in the United States where there are different standards of liability, at least as regards the bookkeeping part of the Act, for 50 per cent-owned, 25 per cent-owned or other percentage interests which are actually spelled out, but our principal way of dealing with it, I think, would be to say that, if contractual means are taken, then that should be the limit of a company's obligation over the actions of entities which it does not control. Now, as regards subsidiaries, we have been told by the departments that they have no intention of trying to make holding companies automatically liable for the actions of subsidiaries. They say it is only if there is a connection between the business of a holding company and the business of the subsidiary that the question should arise, and all that we are asking for in the Bill is a clarification that, if there is an accusation of bribery on behalf of the subsidiary, it should be shown to be in aid of a specific business conducted by the holding company and that it is something which would have to be proved before the holding company could be made liable for the act of bribery on a subsidiary.
Q209 Lord Thomas of Gresford: Would that cover an overseas subsidiary?
Mr Berkley: It would cover all subsidiaries.
Q210 Lord Thomas of Gresford: Well, if an overseas subsidiary gives a bribe which assists the business of the holding company, you think that the holding company should be responsible and should have corporate liability?
Mr Berkley: I do not think I made my point clearly. Business is a matter of fact and what I said was that, if the subsidiary gives a bribe in aid of an actual factual business conducted by the holding company, then there could be liability.
Q211 Lord Thomas of Gresford: On the holding company?
Mr Berkley: On the holding company.
Q212 Baroness Whitaker: Could I just revert to the original point about syndicates and joint ventures. Mr Berkley, are you saying that syndicates and joint ventures should, by law, have contracts which oblige no bribery?
Mr Berkley: I am saying that that is the inevitable practice in international business today.
Q213 Baroness Whitaker: That would be the way to do it?
Mr Berkley: I do not think you could find a major joint venture agreement anywhere in the world either in the oil business or in the construction business or whatever without some quite strong provisions saying that there shall be no bribery by members of it.
Q214 Baroness Whitaker: If such a contract were obliged by law, then ----
Mr Berkley: I think that, when you step into the ground of saying that a contract should be obliged by law, that is a very deep legal question indeed.
Q215 Baroness Whitaker: Well, there are some elements of contracts which have to be in those contracts.
Mr Berkley: Well, the way it stands at the moment is that, given international business as it stands, a company would be very foolish to enter into any such contract without such provisions being present in it because it would fall foul almost inevitably, if there were any connection with the United States at all, of liability perhaps under the Foreign Corrupt Practices Act.
Q216 Baroness Whitaker: Perhaps we can look at that a bit later. We did receive in one of our evidence sessions previously quite a lot of criticism of the Bill because foreign subsidiaries were really outside the framework of the Bill, and this was thought to be one of the defects. Now, in your view, do you think that the Bill is too strong in this matter? Am I right?
Mr Berkley: I think the Bill is too strong because it seems to attribute any bribery by a subsidiary, and the words are, I think, "in connection with the business of the holding company", and we say that is far too strong, far too wide.
Q217 Baroness Whitaker: So you do not agree with our previous witnesses that it is too weak?
Mr Berkley: I think it catches too much. It potentially penalises too much conduct.
Q218 Baroness
Whitaker: Do you think that foreign subsidiary bribery
is one of the chief conduits for bribery?
Those of us who have been round
Mr Berkley: I would not like to say whether it was one of the chief conduits, but I have no doubt that, if it does happen, that is a channel through which it might well happen.
Q219 Baroness Whitaker: So do you not think that it ought to be deterred?
Mr Berkley: Provided the principle of the autonomy of corporate entities is not prejudiced, and it would not be prejudiced if our suggestion were adopted, namely, that that subsidiary would be acting in fact as an agent or employee directly of a concrete business conducted by the holding company.
Q220 Baroness Whitaker: But does that affect the reality of modern British company activity, do you think?
Mr Berkley: Well, there is another approach. If you read the Halliburton settlement, which has just been reached in the United States, it is quite clear that the United States' Department of Justice works on the principle of imputed knowledge and, if a knowledge of the bribery on the part of the subsidiary, no matter how distant from the centre, can be established, that imputed knowledge, then the holding company is liable under the Foreign Corrupt Practices Act. In Halliburton, they had about five layers of subsidiaries and the Department of Justice cut straight through them.
Q221 Lord Lyell of Markyate: Mr Berkley, I think your last sentence really focused on one of the key questions in my mind, which was that there should not be a deliberate shutting of the eyes to what was going on at a subsidiary level and, if that could be shown, then it does not matter what you put in the contract, you are likely to be at risk. I would not have thought you would demur from that.
Mr Berkley: No, that is the American approach. It is not foreshadowed in the Bill before you.
Q222 Lord Lyell of Markyate: No, I see that, but it explains your position. There are two points in this question. The first is that you have made it very, very clear that you think that the 'reasonable belief' defence, which was in the Law Commission's draft bill, ought to be reinstated in this Bill. Speaking for myself for the moment, I have a bit of sympathy for that and we shall look forward to your draft amendments to show how the thing is to be seen in the round. The second part of this question relates to prosecutorial discretion. Having had a role for ten years in supervising that, I am not terribly keen on the law leaving too much to prosecutorial discretion, although obviously public interest matters are very important in particular cases, but basically the law should be clear and people should understand where they are, so I just want your comment, which I think I have pretty well got on the first bit, about the 'reasonable belief' defence and the idea of introducing into this country some sort of prosecutorial role similar to in America, if that is what you had in mind.
Mr Berkley: I am glad that you see the point we were trying to make about the defence, and maybe I can leave that there and Mr Campkin can perhaps develop it. On the matter of prosecutorial discretion, from a lawyer's point of view, I think it is inherently undesirable. There must be some discretion, but, nevertheless, to say, "We, the Legislature, do not see our way to spelling out what the law on this point ought to be", as, for instance, in facilitation payments, "and we leave it to the discretion of the prosecutor to decide what should happen", that, in principle, I think, is wrong. There are, as you once again know, I am sure, government guidelines for federal prosecutors in the United States which go into many, many, many pages, but our basic position, I think, and Gary can speak for this as well, is that we would like the law to be clear and we would not like it to be papered over by prosecutorial discretion.
Q223 Lord
Williamson of Horton: I wanted to ask about facilitation payments
and corporate hospitality. Do you think
there should be any specific provision about that in the Bill? Of course, in the United States facilitation
payments are differentiated and they are perhaps much more widespread than
bribery in the sense of what most people understand by it, so do you think that
there should be more about that? I do
bear in mind that we have mostly been discussing external business, but
actually bribery does not begin at
Mr Campkin: Maybe I can kick off with that and give a comment which addresses the two questions, and it goes back to the issue of clarity. I hope that one of the things we have done this afternoon is to raise some significant issues of clarity with the draft Bill which, quite frankly, do need to be resolved from a business perspective. In terms of facilitation payments, corporate hospitality and indeed promotion, which is the other part of this area, I think it goes back to a potential defect in the draft Bill in that the draft Bill's structure under the general offences leaves some doubt as to what is covered and what is not because of the 'reasonable person' test. Again, I think it is one of those issues which needs some degree of clarity because again facilitation payments in some jurisdictions are legal, corporate hospitality is not an illegal act and promotion is a part of doing business, and I would suggest that the Bill needs to be careful not to catch those things which are not intended to be caught as a criminal act.
Chairman: Thank you, lady and gentlemen. If there is anything further that you would like to communicate with us, we are more than prepared to read it, but thank you for answering our questions so diligently and thank you very much for coming.
Witnesses: Mr Derek Marshall, Director of Defence and Homeland Security, Society of British Aerospace Companies; Mr Brinley Salzman, Exports Director, Defence Manufacturers' Association; and Mr James Maton, Partner, Edwards Angell Palmer and Dodge UK (on behalf of the UK Anti-Corruption Forum), gave evidence.
Q224 Chairman: Welcome to the final session this afternoon, and it will be interesting to come along to see round two tomorrow on the defence sector. The first question is one which has been asked earlier. It has been rumoured that once or twice a British defence contractor has possibly indulged in activities that could fall within the definition of 'corruption' or, in the case of this Bill, 'bribery'. Is this reputation justified? I am sure you have a robust defence of the industry, but have you seen any improvements, or are we going in a direction different from that of about ten years ago when there was a great deal of dirty pool being played? You would know, from your own experience of the British defence sector, that others were being a bit naughty and winning contracts, as is alleged the British were, so a simple question, but not easy to answer: are we as bad as the others, are we better than the others, is it getting worse, is it getting better? We are asking essentially for a free flow of information please, gentlemen, from you.
Mr Marshall: Thank you, Chairman, and I will attempt to start off a reply to that very ambitious question. There is no scientific study, of course, of levels of corruption and, therefore, a lot of what we know is anecdotal, but I think my impression, from having worked with the industry for quite a few years now, 20 years now probably coming up, is that the awareness of this issue in the industry is totally different from, say, 20 years ago and we see much more evidence of companies embedding into their culture that this is not the way we want to do business. The Woolf Report has of course been mentioned, but there are many companies who have set corporate standards and have published them, and we know that they are trying to implement them globally. I think we also should give credit to Transparency International; they have done a huge amount of work to make everyone aware of the issues and they work both, of course, on the customer side as well as on the supplier side. Lord Robertson, whom you heard from earlier, has been holding meetings with the industry regularly and encouraging us to do better, and we have been trying to do that. I think the other thing that we should mention is that the Foreign Corrupt Practices Act of the US has been mentioned quite regularly and, of course, when you come to the defence sector, the United States is over 40 per cent of the global market and most of the sizeable companies in the UK and indeed many of the small ones have in fact invested into the US market and are extremely affected by the US regime, so that has had an effect as well. For ourselves, we have been running a major campaign for the last three years and it was very similar to the things that Lord Robertson was mentioning, and the European Protocol that he mentioned, we have filed with the Committee, so you can have a look at that, and we have nationally been trying to roll out that standard and get British companies to sign up to the European standard and, to go in behind that, to encourage implementation. We also filed with you a booklet that we launched last year to try and help particularly smaller companies to implement the standards. We, therefore, are trying to show that we do mean business in addressing these issues, but it is very clear that reputation matters a lot in this sector and we are concerned that reputation can be used against us, and that is why, in general terms, we support a Bill and we would like to see a Bill go on to the statute book; we think that would help.
Q225 Chairman: That is encouraging. Mr Salzman, would you like to add?
Mr Salzman: I can just reinforce what Derek was just saying, that we would be delighted to see a Bill in place as soon as possible and I think it is not necessarily a matter of bribery and corruption being as commonplace as it might have been, but certainly within the industry its awareness of bribery and corruption is much higher than it used to be because of certain particular high-profile cases which have arisen.
Q226 Chairman: Mr Maton?
Mr Maton: Well, I am not here as a representative of the defence industry, I am here from the construction and engineering sector, so I cannot speak for the defence industry.
Q227 Chairman: A totally flawless approach! We have got you here under false pretences - perfect!
Mr Maton: If I could just say a few
words about the industry that my organisation is in, certainly that is an
industry which has suffered enormous problems of corruption in the past. Like the defence industry, we think that
bribery is not commonplace amongst UK companies, but there is a minority,
perhaps a significant minority, that are engaged in corrupt practices and there
is probably a larger number of companies that do not have adequate
anti-corruption procedures, systems and controls which are vulnerable to
isolated cases of corruption, and that is, of course, something that the draft
Bill is aiming at. Subject to the
comments in the paper that we have presented to the Committee, like my
colleagues here, we are supportive of the principles of the Bill and would like
to see
Q228 Chairman:
I
just want to come to this question, abusing my position as Chairman: can
companies survive in competition in your sector, Mr Maton, and the defence
sector if others are not going down the same route that the European countries
and
Mr Salzman: Certainly, in the European
Union, as Lord Robertson mentioned, the ASD, the European defence and aerospace
trade association, has developed this common industry standard as a model to
harmonise policies across the industries across the European Union, and it is
up to us to try to persuade our member countries to sign up to harmonised
standards. This sets an excellent
benchmark against which we can try to measure success, and the common industry
standards are comparable to
Q229 Chairman: The sort of problems you would face in the defence sector are not just bribery done by others, but corruption, which obviously is much broader because you do not necessarily have to bribe if you are being corrupt, and bigger countries can win contracts because they have muscle, they may be defenders of a country and, therefore, they would have the ability to win a contract, probably legitimately, by playing other cards and not the cards of corruption, so could you comment on how difficult the field is for countries and companies trying to survive and trying to compete when you have others operating to different rules, not necessarily being corrupt or resorting to bribery, but having other tools in their toolbox to win competitions?
Mr Salzman: I think ASD, in the way of a lot of the common industry standards, is trying to ensure that ultimately the aim is to make good business ethics a competitive advantage. As Lord Robertson mentioned and in questions from the Committee, if foreign governments make it clear that they will only do business with companies who sign up to the CIS or other comparable industry standards, then that is a competitive advantage and that drives out those companies who do not sign up to such standards.
Mr Marshall: I think I would make a couple of points. I think Brinley is right, that all the work we are doing through ASD, and we want to move beyond a European scene to wider global action, is intended to try and make the complete culture change, and that is a long-term objective we would accept, but we must aim for a situation where the customer wants to deal with companies who have a good record. In that respect, we are very supportive of what Transparency International is trying to do to look at the customer end of the market through NATO and elsewhere to try and get the customer side of the equation right because it is very difficult, as you say, for suppliers to maintain a strong level of compliance throughout their businesses if the customers are not playing ball, so we need to try and do that. Competitiveness in the global market is obviously of great importance to the defence industry and, a little bit contrary to some of the comments made earlier, in our sector we do not think that our behaviour is worse than other countries', we do not think that, but we do think that reputational issues are being used against us.
Q230 Chairman: Mr Maton, anything to add to that?
Mr Maton: Simply this really: that again I am in a sector where corruption is an acknowledged problem, but there are a large number of companies which do not engage in corrupt practices and they are at a competitive disadvantage because they are faced with competitors that do and, until there is effective legislation and an effective enforcement regime to go along with it, that position is going to remain. Certainly, you have got three organisations here and you have had organisations earlier representing business who believe that it is in their commercial interests for there to be an effective enforcement regime.
Q231 Martin Linton: Perhaps I could just ask Mr Salzman, initially at least, about the experience of BAE and Lockheed, both of them members of your Association and both of them obviously involved in scandals over the last 20-odd years. They will be here themselves to give evidence, so I am not asking you to speak for them, but do you think that their experience has led the whole of the industry to a genuine change in business practice?
Mr Salzman: It undoubtedly has, yes. Certainly, BAE Systems has learnt a lot from
its experiences, as Lord Robertson said, and it has committed itself to
complying with, and implementing, the recommendations of the Woolf Committee
even before it saw the recommendations.
I myself was very recently giving a tutorial on export controls at
Q232 Martin Linton: The rest of industry, have they followed the same learning curve?
Mr Salzman: I think a lot of them have been looking at the recommendations of the Woolf Committee and seeing how they would be relevant to their commercial activities and corporate set-up.
Q233 Martin Linton: To take up Mr Marshall's broader point there, do you think that actually creating a level playing field in defence and other industries is something worth doing, even if it costs us money? Indeed, do you think that it does cost us money or do you think that there are actual commercial advantages in being seen as the leader of the field in international anti-bribery legislation, if we are indeed?
Mr Marshall: Well, I think that we are moving towards a situation where we are trying to create competitive advantage through our record in the sum done. Adding to what Brinley has just said, in terms of the UK aerospace and defence industry, at present we have 116 companies signed up to the ASD common industry standards, so it is not everybody, but it is a very convincing start, so this industry has turned the corner in terms of adopting principles and starting to implement them across the board. It is very difficult obviously in an international competitive situation, but I think that we are moving towards trying to create competitive advantage in getting the higher ground.
Q234 Martin Linton: Is there not a danger that we want to be pure, but not so pure that it puts us at a disadvantage?
Mr Marshall: Well, it is very hard for somebody in a trade association to give you any clear response to that. What we do is we say to our members to look at the examples around industry, and there is a very good example, I think, in Sir Brian Fall of Rio Tinto, who is a very good spokesperson on behalf of the company which has said, "We think that in the long term it is to our competitive advantage to embed in our company procedures which say, 'We're not going to bribe', and we think that is actually positively a competitive advantage", and I think that is the message we have got to spread.
Q235 Earl of Onslow: Are there any countries for the defence industry to whom it is obligatory to pay a bribe?
Mr Marshall: Well, I have to say, I am not an export manager, so I just do not know the answer, but two things strike me. First of all, we have a very strict export control regime in this country, and I suspect that possibly some of the countries you are talking about we would not be able to export to anyway. Secondly, it seems to me that, if companies were implementing the sort of regime that is envisaged in the Woolf Report, they would simply not be going there.
Q236 Lord Thomas of Gresford: I have a question for Mr Maton. It was suggested by one of our colleagues on the Committee that we are leading the international field in anti-bribery legislation. Mr Maton, your partner, Mr Joseph, is recorded as saying, "Our own [corruption] law is in such a mess that it simply does not get enforced", and that "major global companies would be absolutely correct to be far more in fear of falling foul of the [US Foreign Corrupt Practices Act] than of breaching our own law". Do you agree with that statement?
Mr Maton: I do agree with it. I do not think at present the
Q237 Lord Thomas of Gresford: But we could be so if we passed this Bill in the proper form, you would agree with that, and there is a need for it?
Mr Maton: Yes.
Q238 Lord
Thomas of Gresford: It will have surprised you, no doubt, to hear
Mr Andrew Berkley suggest that we should not be regarded as weak but as strong
as the
Mr Maton: Certainly, I think that is the view that is the more common view.
Q239 Lord Thomas of Gresford: The OECD view.
Mr Maton: Certainly the OECD view and, if you just simply look at the statistics on prosecutions, we are languishing near the bottom of the league table and are certainly a long way behind the United States and even France and other countries. It is not just the legislation that needs to change, it is the enforcement regime that goes with it. Actually, if I can make one other comment which is not strictly to do with the legislation, but I think it is important, certainly the prosecuting authorities in this country are keen for there to be more self-reporting by companies when incidents of corruption and bribery are found. That happens in the United States, but it is not happening here, and one of the major obstacles to that is the fact that in the EU procurement directives, if a company is convicted of a corruption offence, it is automatically debarred from public sector contracts, regardless of the severity of the offence, regardless of the mitigating circumstances, and it would be very hard to advise any company finding one of its employees or divisions, whatever it may be, engaged in corruption to consider self-reporting against that background. That is certainly something that needs to be addressed and a proportionate debarment regime put in place.
Q240 Lord Lyell of Markyate: That is a point you make very strongly in your written evidence and it seems powerful. What has to be agreed by whom in order to change it?
Mr Maton: I am not sure I fully know
the answer to that. Potentially, it
would need amendment to the EU procurement directives which, on this point,
actually are very short and do not go into great detail at all. However, there have been other countries
that have found solutions to this, for example, who have decided that the
mandatory debarment would only apply for a short period of time in the
circumstances of the offence that has been committed. I think in the
Q241 Lord Lyell of Markyate: At present, the only thing which could be done in this country is if the prosecuting authority of a company had reported itself to take that, as a public interest matter, into account on whether to prosecute. Is that correct?
Mr Maton: Well, there are other solutions. For example, under the Proceeds of Crime Act, it is possible to recover the proceeds of crime as a civil matter and it would be possible, for example, for a company which self-reported to effectively do a settlement in civil proceedings brought by one of the prosecuting agencies that have powers to recover the proceeds of crime effectively as a fine for the corrupt behaviour, representing perhaps the profit on the contract, and that would not, therefore, be a criminal matter and would not, therefore, trigger the mandatory debarment under the EU procurement directives, so there are mechanisms which, if thought through, could be used to avoid the very harsh consequences of automatic debarment, but, of course, they are no replacement for a proper regime in the first place.
Q242 Lord Goodhart: Really to follow up on that, when we are dealing with enforcement procedures, is there a case, instead of having everything dealt with, as it is in the Bill at the moment, by criminal procedures, in some cases, for instance, where a corporate body is being prosecuted because of the actions of one of its agents, to deal with it by civil procedures and to have civil penalties rather similar, for example, to those which are dealt with by the FSA in cases of financial misbehaviour?
Mr Maton: Well, yes, and indeed in health and safety legislation of course, which has a long pedigree of various regimes and degrees of punishment, so to speak, for offences of differing severity, so there are analogies which, I think, can be usefully deployed in this area and they do need some thought, but certainly they are areas which could be explored.
Linda Gilroy: Chair, I wonder if I could
just ask you if I could, for the record, clarify something. Lord Thomas referred just now to a member of
the Committee suggesting that the
Lord Thomas of Gresford: No.
Q243 Linda
Gilroy: That is fine.
I just wanted that to be clarified because that was not with reference
to the
Mr Maton: Yes, our position is that there is a need to strengthen corporate criminal liability; it is notoriously difficult to prosecute companies in this country. There needs to be an effective enforcement regime and that is lacking at the moment, so, in principle, yes, we do support this offence. It has the right objectives, in our view, and it will encourage companies to implement, to maintain and to enforce anti-corruption policies, systems and controls and it will penalise those companies which do not implement such controls. We do think, however, that the test of negligence is a low standard for the criminal law. Gross negligence or recklessness, something like that, seems more appropriate in the context of a criminal offence and, clearly, it would be grossly negligent or reckless not to have a compliance programme or simply to write a policy and never do anything with it.
Q244 Linda Gilroy: Does that have to be changed in the actual drafting of the law or am I right in thinking, as you have suggested, that it could be tackled in guidance?
Mr Maton: I think that point would need to be put into the legislation, the test of negligence replaced by recklessness or ----
Q245 Linda Gilroy: So what would be your rebuttal, in that case, to the position outlined by Professor Wells, which I am sure you are familiar with, that in fact it is too narrowly drafted rather than too generously drafted and it is also too complex? As you probably know, she favours removing the need for the prosecution to prove negligence and that companies would then be criminally liable for bribes paid on their behalf, except where due diligence is established and adequate procedures are in place. How do you respond to her proposal?
Mr Maton: It seems a low standard for the criminal law and actually, dealing with the point that was discussed a moment ago, a law which potentially, we are not sure, could lead to mandatory debarment from public sector contracts, to have relatively low thresholds in the criminal law for this sort of behaviour. I am not sure we are against the amendment to the law in the way which has been suggested in that example, but, subject to the defence of adequate procedures, there is a need, and we will come on to that, I think, for there to be more guidance on what 'adequate procedures' might be, but again our view is that it would be necessary for there to be recklessness or gross negligence in relation to a breach of those adequate procedures.
Q246 Linda Gilroy: I do not know if you were here for the first session that we had, but does that not play into the hands of people who believe that we would be doing just enough, but only just enough, not to ruin UK competitiveness?
Mr Maton: Certainly, some people would have that view and it is a view which has some merit, but I think we also need to look at the other side of the coin which is that, if you lower the threshold, you can have situations with companies that are trying their best to implement, to maintain and to enforce proper systems, controls and procedures and, for some reason, they fall down in a way which is negligent, but is not reckless, and to be found guilty of a criminal offence, and I think that is quite a harsh thing to do. It may be met by an administrative system which has been suggested a moment ago, but I think some element that is standard in the criminal law needs to be part of this offence.
Q247 Linda Gilroy: Is it not the case, however, that the way it is drafted in the draft Bill at the moment strikes a little way between it being either too harsh or too lax?
Mr Maton: It is not an unreasonable view, but it is not one which we, as the Forum, support and we do think that it should be recklessness or gross negligence.
Q248 Chairman: Mr Maton, again recapitulating, in your evidence, you have said that you think gross negligence would be a fairer test than negligence for a serious offence of this nature and you are having some differences over terminology, such as 'adequate' and 'manager' et cetera, but the question I would like to ask is: do you think that guidance is required on what constitutes 'negligence' or 'adequate procedures' and, if so, who should prepare it, what principles should it enshrine and what status should it hold?
Mr Maton: I think it is essential that there is guidance. It is not clear at the moment what compliance procedures will be considered adequate and in what circumstances the offence would apply. Just on the manager point, we actually think that is quite significant because it is a term that could include quite junior managers in large organisations. Guidance is essential, I think, ideally published by prosecuting authorities, but put together by some kind of working group which includes prosecuting authorities, includes industry and includes government. The objective is to assist companies, which are looking for certainty in this area, to know what they have to do in order to put into place adequate systems, controls and procedures, and at the moment that guidance is lacking. I do think as well that it would need to be published a reasonable time before the introduction of the offence. What must it contain? What the components are for a proper compliance programme, what adequate procedures, systems and controls are, what is needed internally by way of training and so on, what is needed in relation to foreign subsidiaries and joint ventures, and it must deal with difficult issues, such as facilitation payments and hospitality. In relation to status, I am not sure that it would be easy to include it as part of the legislation itself; I think it would be too complex a document to draft. Again, I think there may be an analogy here with health and safety legislation which, very often, has quite short legislation, but then has guidance produced by the Health & Safety Executive to go along with it which gives quite clear guidance to companies as to what they should do, and companies are free to depart from that guidance, but, if they do, they have got to have a jolly good reason why they have departed and, if they have complied with it, they are very unlikely to be prosecuted and very unlikely to be convicted, but I do think that it is necessary. Certainly, I know that companies are spending an enormous amount of money on advice from lawyers and accountants on what constitutes 'proper procedures' both ----
Q249 Chairman: Be careful, there are too many lawyers here!
Mr Maton: I am a lawyer myself.
Q250 Chairman: We are just honest politicians!
Mr Maton: Companies are spending enormous amounts of money and lawyers are finding it very, very difficult to give advice on what is adequate, what is reasonable and what is necessary.
Q251 Chairman: Could you have a stab at suggesting what that guidance might contain so that we can show this around to others, and maybe this will inspire other organisations to join in in providing such guidance?
Mr Maton: In writing?
Q252 Chairman: Please, if you do not mind.
Mr Maton: Yes.
Mr Marshall: Chairman, could I add from our side that we obviously have gone out in front and published some guidance for what, we think, our companies should do and, in drawing up this guidance, we had advice from a number of organisations, including Transparency International, the Institute of Business Ethics and so on, so we are promoting this guidance actively. Along with James, what we want is certainty that the guidance we are giving is the right guidance and whether it is supported by the Government. It is interesting that we now are engaging in a dialogue with an arm of government, UKTI, the defence and security organisation, about this guidance and how we can demonstrate that it is being implemented by companies. It does seem to me that we are moving along a path here that leads to some bringing together of this guidance. The thought was going through my head as we heard the evidence this afternoon that you have brought together the construction sector and the defence sector and we have not met before, but we are obviously working on the same issues.
Q253 Chairman: And there are many other sectors which are not before us.
Mr Marshall: Maybe we do need a national forum that brings together the various sectors with government and others to work some of these things out.
Chairman: I am sure that is a very good suggestion and I am sure we will take that into account.
Q254 Baroness Whitaker: Another concern has been whether subsidiaries, joint ventures and syndicates are adequately covered in the Bill. Some of our experts have thought that the Bill is seriously deficient in that it does not cover them properly, whereas others tell us that they think it is too draconian on the subject. What are your views?
Mr Marshall: Well, I do not really have a lot to add to the very technical discussion you had on that earlier, but I thought there were one or two points that might be of interest. Obviously, we are getting companies signed up to our common industry standards and are finding that some companies will sign up at HQ level and say, "We're making a commitment, we believe, through our whole group", and, for other companies, their various subsidiaries will sign up separately, and we have not quite thought through the implications of that yet, but it is an interesting development. Clearly, from our point of view, whoever is actually running the business and needs to implement the procedures is the person we want to see signing up, and we insist it is a board-level person. In terms of cross-border joint ventures, it seems to me that the common industry standard is helpful. It is an EU-wide commitment and similar activity to that taking place in the UK is taking place in all European countries to get individual companies to sign up to the standards, so there is an opportunity there for some cross-border activity, and we are now trying to extend that to establishing transatlantic principles with our colleagues in the US and Canada, so that might help, but I do not think I have got any more to add on that point.
Mr Salzman: I agree entirely with Derek, and our experience in trying to get our member companies to sign up to the CIS similarly reflects SBAC's experience in that some headquarter companies sign up and some filter it down to their subsidiaries to get their subsidiaries to sign up to it.
Q255 Baroness Whitaker: So there is good practice?
Mr Salzman: Yes, in those companies.
Mr Maton: If I could make one very quick point, we, the Forum, do not have a concluded view on that, we represent a range of organisations, and I think perhaps that the internal debate we have had may inform this. The difficulty is that there is a conflict between a feeling that it is wrong to have the holding company liable for the acts of foreign joint ventures, subsidiaries, or whatever they may be, in circumstances where there is no control over those activities and the conflicting view that the payment of bribes through subsidiaries is a relatively common way of meeting the payment of bribes, and that is the difficulty with those two competing problems. Not having some source of responsibility at head company level does potentially leave a very significant gap in the law and an obvious route for the payment of bribes. Perhaps having recklessness or gross negligence as part of the offence and having sensible guidelines, which describe in some detail what companies should be doing in relation to foreign subsidiaries and joint ventures, depending on their degree of control and the degree of shareholding in those companies, would be of assistance.
Q256 Lord Goodhart: Is there a possibility that it might make sense here that, because the question of the potential liability can be based on the activities of partners and joint ventures or of subsidiaries, there should be some flexibility in the legislation and this particular part of it should be something which could be altered by secondary legislation?
Mr Maton: That is certainly possible. What companies need is ----
Q257 Lord Goodhart: Do you think it would be positively advantageous or not?
Mr Maton: Well, what companies need is certainty and they need to know what their position is so that they can put in place proper procedures, systems and controls and they can train their employees and their foreign employees in foreign subsidiaries and joint ventures on the issues that arise. Provided that the criminal offence, as it exists from time to time, is clear and everyone knows, as best they can, what behaviour will or will not be a contravention of that offence, I think business would broadly be happy. Where there is a lack of clarity for any reason, difficulties will develop.
Lord Thomas of Gresford: You will remember that Mr Andrew Berkley drew a distinction between subsidiaries on the one hand ----
Chairman: Be careful, he is still here!
Q258 Lord Thomas of Gresford: Yes, I am not going to criticise him in any way and I, frankly, support a lot of what he said - and joint ventures and syndicates on the other hand. He made the point that, when it comes to joint ventures and syndicates, a clause in the contract would be sufficient as an adequate procedure, I think that was his point, because you could not conceivably control what the operator in an oilfield was doing, for example. I am interested to know whether that complies with the code which Mr Marshall was talking about or with the view that Mr Maton has been describing which has collectively come together. Have you any comment on that as being adequate, a clause in the contract saying, "Thou shalt not bribe"?
Mr Marshall: Well, first of all, I have not referred to the Protocol, but I doubt whether it covers that amount of detail, to be honest. Clearly, it sets out some very detailed principles that should be adopted, but I am not sure we go into the structure of the industry in that way, and I think it is a point which we indeed ought to look at because joint ventures are quite a common thing in the industry, although they are mostly, I think, at the European level and, therefore, companies across Europe should be covered by the CIS standards. I do not really have anything to add to the point that Andrew made, but I do think that what we need to look at is getting at the people who are really running the business, and the one thing that I have observed about joint ventures is that they differ very greatly in character. Some are actually devolving the management down to a group of people who are effectively running another business and some are really simply bringing together the main players to work together. In the latter case, it seems to me, the commitment made at the board level of the main company should apply to that organisation.
Q259 Lord Thomas of Gresford: Mr Maton, is a clause in the contract enough?
Mr Maton: Clearly, clauses in contracts are an important tool to try and prevent corrupt practices. It all really comes back to the level of control and interest, I think, in the joint venture in this case and, as Derek has said, there is an enormous range of different ways in which joint ventures are set up and in which they are managed and operated, and it is very difficult to come up with a single rule for every single case. Certainly, I do not think that simply having a contract clause on its own would be sufficient in a number of cases, so I do not know, but it is a question of control. If you have any level of operational control or you have the ability to go in and see what the company is doing by some sort of audit, a contractual provision, as I say, is not going to be sufficient and there are other things that you could, or should, be doing.
Q260 Mr Cox: Would you not agree though that this point would be a very good submission to a judge? If the company were charged and it had very little control over its subsidiary's activities, then no doubt its counsel would submit to the judge that the meaning of clause 5(4) and the expression 'adequate procedures' had to take into account the level of control which either the partner in the joint venture or the holding company had, so it is really just a question of interpretation for the judge. The judge may well conclude, and so direct the jury, that an adequate procedure for a company that had virtually no control was a contractable clause along the lines that you and, indeed prior to you, Mr Berkley had discussed, but in another case, and it will depend on the facts and the circumstances, where the holding company had much greater control, it will expect greater degrees of procedure. This is done all the time in courts of law, is it not?
Mr Maton: Well, that must be right, but the reality is, of course, that companies do not want to get into a court of law and they want to have ----
Q261 Mr Cox: But, I am afraid, it is a hazard of having a law at all, is it not, that companies have to comply with it?
Mr Maton: Well, it is, but they want to know now, when the legislation is introduced, what are likely to be considered to be adequate procedures, systems and controls.
Q262 Mr Cox: You have made a very fair point and it is fairly obvious that what are adequate procedures ought to have some kind of industry-led and agreed guidelines, much as the money-laundering procedures and regulations do, so that companies can be properly advised about their compliance, dependent upon their particular situation, but again this is perfectly normal experience.
Mr Maton: And, at the moment, there is no guidance in place either in this country or envisaged which will help companies if this legislation is passed.
Q263 Mr Cox: But that is obviously badly needed if this Bill in this shape goes forward, is it not?
Mr Maton: Yes, it would be essential.
Q264 Lord Lyell of Markyate: This is question 19 and it has two parts. The second part is what the attitude of you three is to the point which was strongly urged on us by the CBI, the International Chamber of Commerce and the Federation of Small Businesses that the defence under the clause 4 offence of reasonable belief, which was recommended by the Law Commission, should be put back in the Bill as it was taken out in the draft, so perhaps you could tell us what your view of that is. Then, the other question which is rather more diffuse is: to what extent do you find clauses 1 to 4, as they are drafted, clear and predictable, but fair from the point of view of business? Have you studied them with those questions in mind? It occurs to me that you might have some doubts in some places, but perhaps you could let us know.
Mr Marshall: Well, I should have probably said earlier that we are members of the CBI and we have contributed some views to the CBI and indeed of course many of our companies are CBI members, so I think it would be fair to say, from an SBAC point of view, that we do not have anything to add to the CBI evidence which has been given and we would support what they said about the 'reasonable belief' issue and the other issues they raised.
Mr Salzman: The same goes for the DMA, that we support the evidence in the CBI's submission.
Mr Maton: We broadly support the Bill. We have submitted a paper, as you have seen, which makes relatively minor points on the legislation which, we think, should be taken into account. Broadly, we think the Bill is workable and those offences are workable and, by that, we do think they are clear, fair and predictable. Our issue, as you will see from the paper, is that in some of the offences we think that new offences are created where previously none existed and it may criminalise behaviour which is not understood as bribery.
Q265 Mr Cox: On that point, if I may, there is very much, therefore, it seems to me, a great worry about clause 5, that, in using this expression 'improper', we will capture a great deal of conduct, and there are levels of impropriety which may very well, in most ordinary and right-thinking people's minds, not amount to criminal activity. I can think of a whole series of examples, and no doubt you can, where, frankly, one would be concerned if it ever crossed the threshold of the criminal court. I can think of an example of a trading department in a bank where one organisation offers higher pay if they all decamp and walk into the bank next door. That would fulfil every single criterion under clause 5; it would offer a financial advantage, it would be in breach of the contractual duty of good faith and it would, almost certainly, produce angry cries from the bank which had lost its trading department. This is something we need to look very carefully at, is it not? The use of the word 'improper' in a criminal statute is something we do need to look at with care, would you not agree?
Mr Maton: Yes, we do agree and, where behaviour not understood to be bribery is criminalised, we do think there are issues of the kind which you have articulated, and those sorts of matters which you describe would be best dealt with in the civil courts.
Mr Cox: But it would be entirely up to the prosecutor of the day as to whether he did it and no company is going to know.
Chairman: It would certainly decimate the premiership!
Q266 Mr Cox: Of course it would!
Mr Maton: That may be a good thing!
Q267 Lord Williamson of Horton: This is a question about facilitation payments and corporate hospitality which, at the moment, are not differentiated in the Bill we are discussing, although there are of course differences and facilitation payments are differentiated in the United States' legislation and we all know that in some countries it is part of the life that, if you are negotiating business, people continually are asking you for facilitation payments to do this or that, get your ship there or anything, and they are really a feature of life in some parts of the world. The question is: should we deal with this or should we just leave these under 'bribery' where they could be prosecuted, but perhaps would not be, or should we do something separate about them? That is the question.
Mr Marshall: Firstly, on the question of gifts and hospitality, the common industry standard, first of all, argues for transparency, so transparency, I think, is a first keynote that we must achieve, and, secondly, it argues that this should not be done if it is obtaining improper advantage through any definitional problems that we have, but I think we understand that we are trying to stop unfair competition, so we have that commitment within the CIS. We have not discussed there the facilitation of payments as a separate category, but I do believe in the discussion which took place during the drawing up of the standards that the feeling was that this was not a separate category, this was an element that could be bribery if it created that undue advantage, or however we define it, so we have not separated it out. I must say, the paper that James's Forum produced, I thought, was very interesting and quite convincing and I think we would like to consider that a bit further.
Mr Maton: It is an extraordinarily
difficult problem and, as a Forum, we do not again have a consensus on it. There is a range of opinion from those who
feel that facilitation payments should be outlawed to those who feel that they
should not be a matter for the criminal law.
Having said that, there is a consensus that facilitation payments in the
Chairman: Well, thank you very much. We have had an excellent afternoon. We have been very disciplined and I hope that attendance is as good tomorrow and as sustained tomorrow as it has been today. Thank you very, very much for coming and for answering our questions so diligently. If there is anything further you would like to write to us, we would be delighted to receive it.