House of COMMONS







WEDNEsday 3 June 2009





Evidence heard in Public Questions 268 - 367




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Oral Evidence

Taken before the Joint Committee on the Draft Bribery Bill

on Wednesday 3 June 2009

Members present:

Mr Bruce George, in the Chair


Goodhart, L.

Lyell of Markyate, L.

Mayhew of Twysden, L.

Onslow, E.

Thomas of Gresford, L.

Whitaker, B.

Williamson of Horton, L.



Mr David S Borrow

Mr Alistair Carmichael

Mr Geoffrey Cox

Mr Jonathan Djanogly

Linda Gilroy

Martin Linton

Jeremy Wright



Witnesses: Mr Philip Bramwell and Mr Alan Garwood, BAE Systems, Mr Lawrence Hammond, Solicitor, Thales UK, and Mr Stephen Ball, Chief Executive Officer, Lockheed Martin UK, gave evidence.

Q268 Chairman: Gentlemen, Thank you very much for coming. We really appreciate it. You know the draft legislation proposals we are looking at and I am sure you have read all the necessary documentation. I am sorry the invitation came rather late but if you are prepared to write some memorandum to us that would be gratefully appreciated, and, if you do not mind, if there are any additional questions we do not want to call you back but if we could write to you we would appreciate that too. The allegations of bribery and fraud within the defence industry, especially arms exports, have been pretty destabilising for a lot of companies and greatly embarrassing to a lot of companies. There are very few nations that have a defence industry that engages in arms exports that has managed to avoid any serious accusations, but that has largely passed. The question I wish to ask you all is what lessons have you learned from your own companies' failures or accusations of failures, which can be just as damning as actual failures, and what are you putting into practice in order to meet the criticisms for your own internal inquiries? That is obviously too long; I hope it will be too long, for a one-hour - I will not use the word "interrogation" - questioning. We already have the Woolf Report on what BAE is doing, but if you could send us your documentation we would find that very helpful. Mr Ball, please. The question is what are you doing to meet the criticisms?

Mr Ball: Within Lockheed Martin Corporation, Chairman, we have introduced policies and procedures and a compliance culture that aligns with US legislation, which is FCPA, the Foreign Corrupt Practices Act. We introduced that during the period when we were Lockheed Corporation and when we became Lockheed Martin Corporation we continued with that process. Essentially, the most important component is creating an environment of compliance with legislation and the ethics guidance of the corporation.

Q269 Chairman: So where you have directors or very senior staff their office is responsible for ensuring that you meet (a) your own standards and (b) the standards of the US Government?

Mr Ball: Yes. The Foreign Corrupt Practices Act requires us to provide a regular report to them, which we are accountable for, and anybody that joins the corporation has to go through a standard set of compliance training, and then that compliance training is refreshed every year through a cascade from the chairman of the corporation all the way through his line of reporting right the way to the bottom of the corporation.

Q270 Chairman: Is there any collaboration between US companies on this because if one breaks ranks they run the chance of winning a contract? Is there any inter-American collaboration on enhancing ethical standards and meeting legal requirements?

Mr Ball: I cannot answer that question. All I would say is that we as a corporation believe it is in our best interests to be absolutely compliant with the law that is in place.

Q271 Chairman: Your company complained to one of the agencies of the US Government about one of your competitors, about the way in which they had acted to the detriment of yourselves, so if you do not collaborate do you fall out with your competitors if you think they are playing dirty pool?

Mr Ball: I certainly would say that we see the elimination of bribery and corruption as a way of levelling the playing field for everybody so that it is a fair battle, if you like, for business.

Q272 Earl of Onslow: We know that Lockheed was involved in bribing Prince Bernhard, so we know that you have been up to old-fashioned habits. When was the last time Lockheed paid a bribe or dodgy commission?

Mr Ball: You are referring to periods back in the 1970s.

Q273 Earl of Onslow: Yes. I am assuming that this was the practice, because I think this has been well established. What I am trying to find out is when you stopped doing it.

Mr Ball: When we implemented -----

Q274 Earl of Onslow: And that was the last time there was a bribe or a dodgy commission paid, was it?

Mr Ball: Yes.

Q275 Lord Thomas of Gresford: I do not think Mr Ball finished his sentence and I would be grateful if he would finish what he was about to say. You said there had not been commissions since something and then the noble Earl interrupted you, I am afraid, so we did not quite hear what you were going to say.

Mr Ball: Since we implemented policies and procedures to comply with the Foreign Corrupt Practices Act.

Q276 Lord Thomas of Gresford: What year was that?

Mr Ball: I cannot tell you the exact year. It was 1977, I believe, when the Act came in.

Q277 Lord Thomas of Gresford: That was following the problems between Lockheed and Japan rather than Lockheed and Prince Bernhard, was it not?

Mr Ball: Yes.

Q278 Chairman: I think Prince Bernhard was the main thing, and I am not seeking to be obstreperous but even though the legislation is pretty strong, much stronger than we have or anybody else has, there have still been misdemeanours. I was looking at an interesting book by Shearman and Sterling running to nearly 311 pages on all of the cases that have been brought by lawyers or by the US against contractors, specifically Colt, Titan Corporation, Lockheed Martin, Venturian(?), United Defence Industries, et cetera, so despite the legislation, and one must aspire to that legislation, still some pretty naughty things are happening and I think we would like reassurance that you do not just rely on meeting the requirements of US legislation but you are excessively vigilant in order to not to be having a finger pointed at you either within the US or abroad. That is the point I would wish to make.

Mr Ball: Yes, and our code of ethics that we train everyone on in the business and reinforce on a regular basis hopefully has a strap line that we "do the right thing".

Q279 Lord Thomas of Gresford: Mr Ball, it is obvious that the regime in the United States is much stricter than it is in this country and prosecutions, as Mr George said a moment ago, have followed quite frequently against various companies in the United States. To what extent has it made United States defence industries less competitive to have the Foreign Corrupt Practices Act imposed upon them?

Mr Ball: I am sorry, I cannot make that judgment. We simply recognise that we need to maintain a level of compliance, and if that means that we are going to lose a contract as a result of not being prepared to offer a bribe then our choice is that we would lose the contract.

Q280 Lord Thomas of Gresford: With the stricter rules that there are in the United States, has the United States defence industry as a whole become less competitive in the world than, for example, the United Kingdom defence industry?

Mr Ball: I think there is a whole range of things that make an industry competitive or not, and I am not sure that the particular point of bribery is a way of making yourself competitive. The outcome is that as a business you need to do the right thing because, although in the short term you may lose an opportunity because you are not prepared to pay a bribe, in the long term it flows to the benefit of the reputation of the company.

Q281 Lord Thomas of Gresford: So in other words you would encourage this country to have a stronger legal framework against bribery than we have at present and you will be in support of this Bill?

Mr Ball: We would absolutely be in support of the Bill. We believe that it would level the playing field and ensure that people were focused on selecting contracts -----

Q282 Lord Thomas of Gresford: And it follows from that that you would not consider that this Bill, if it introduces a stricter regime than exists at present, would make British industry less competitive?

Mr Ball: I do not believe it would.

Q283 Chairman: These questions we will be asking later on. I do not want to make it an entirely anti-American session. After all, BAE Systems is half American now, is it not?

Mr Bramwell: Yes, it is.

Q284 Martin Linton: I just wonder if you could help us on a point of fact. It has been said that there are lots more successful prosecutions in the United States than there are in Britain and so on. Where can we find this listed with any detail that is useful?

Mr Ball: I am afraid I cannot answer that question, Chairman, at the moment, but if you would like us to take that question away and come back to you with an answer, I would be happy to try and do that.

Martin Linton: Chairman, I would find that very useful.

Q285 Earl of Onslow: Can you give us an instance where you have been asked for a bribe and consequently lost the contract?

Mr Ball: I cannot give you a specific instance. I did ask in preparation for this meeting whether the corporation had indeed behaved in that way, where we had refused to give a bribe and so had not bid for the work, and I was told that, yes, that was the case, and that we had also refused to employ international consultants on the basis of the fact that we did not believe they would correctly represent the corporation.

Q286 Baroness Whitaker: From the point of view of competitiveness would you not agree, Mr Ball, that in fact to get a contract through bribery is a mark of failure because it is a less good product which is then sold, so from the buyer's point of view, not the manufacturer's, it is indeed a less effective competition?

Mr Ball: I would absolutely agree with that.

Q287 Chairman: Mr Hammond, please.

Mr Hammond: Thales in the UK is fully aware of the perception of corruption within the defence industry and therefore for several years has had a very substantial code of ethics and compliance programme that runs throughout its group, particularly within the UK. Obviously, it is set by our parent company that is based in France. It is based upon predominantly international standards, such as the OECD Convention. However, subsidiaries such as Thales in the UK are able to modify that to meet local legislation, local needs, and, as I say, it reflects our very serious attempts to make sure that we have a fully compliant organisation.

Q288 Chairman: If I could go back to my Defence Committee days, I would have said you had even bribed in the UK if you thought you could get all the contracts you want, but I will not say that. The question I want to ask you is this, if I may follow up my first question. The track record of Thales is that you have had a few bad incidents in very recent years. South Africa is certainly one, and the Far East, so has that had any real impact on the company, "We cannot afford to have bad publicity and therefore we have got to clean our act up"?

Mr Hammond: With regard to Thales in the UK, obviously, the accusations that you refer to do not relate to the UK businesses, although, of course, they do concern the wider Thales Group, and therefore, yes, of course, there is concern in the UK business about the impact that has. I am afraid I do not have sufficient knowledge or detail to answer the specific allegations, but certainly we work perhaps even more hard therefore in the UK to make sure that we are compliant and that we do have a very strong code of ethics to combat such accusations.

Q289 Chairman: As legislation is now much more international could you write to head office and ask if they could perhaps offer some light on the question that you were unable partly to answer?

Mr Hammond: I certainly can.

Q290 Chairman: Thank you. BAE, a British/American company?

Mr Garwood: What I would like to say, Chairman, is that you mentioned publicity and one of the things we have learned is that the reputation of our company and how we are seen to do business is as important as what we do in terms of programme execution and our financial forms. Over the last few years you will be aware by mentioning the Woolf Committee that the board two years ago gave a full commitment to implement all 23 recommendations of that committee which we are now in the process of doing. We have a team of 18 full-time executives and several dozens more co-opted to a series of committees to work out an implementation process for that, and we can talk more about that. We have launched a code of conduct which we will happily leave copies of for all members with the Clerk. It is a very substantial document which we have briefed now to almost every employee. Every employee in the company will be briefed on this and will have to sign that they have been briefed, have understood it and will comply with our code of conduct We have a new managing director of corporate responsibility who was appointed late last year or early this year and who reports directly to the chief executive. We also substantially revised our policy on the employment of advisers in the international marketplace some time ago and again we have fully implemented that, so I think we have got a quite comprehensive set of processes and procedures in place which are getting us quite a lot of recognition that we are going to be the benchmark for this industry in the future. If I may just address the competitiveness point, I think it is absolutely a pointer for the future that the British Government's change in this legislation and support of the industry will improve British industry's competitiveness in this industry and in its market and my colleague, who is the Legal Director and General Counsel to BAE, and I are absolutely at one on that commitment.

Q291 Chairman: That is a general commitment?

Mr Garwood: A general commitment.

Q292 Chairman: Mr Bramwell, is there anything you would like to add to that?

Mr Bramwell: No, I have nothing further to add to that point, thank you.

Q293 Chairman: You are the one with the ultimate legal responsibility. Does the fact that you are partly an American company and have a great deal of your operations in the United States mean that (a) the US law is generally tighter, and (b) if it is, has any of that experience spun back towards your operations elsewhere?

Mr Bramwell: Perhaps I can answer that. The US business of BAE Systems, of course, is not listed in the United States but it is a US business which employs roughly half the workforce of 53,000 people, I think, now, who are, of course, subject to the FCPA, and BAE Systems' approach is to apply the global high standard across its entire operations. We may come on later to facilitation payments which would be an example where we operate a system of prohibiting the making of facilitation payments anywhere in the world within our company, notwithstanding that in the US, for example, I think FCPA facilitation payments are permitted. There is some read-across and I will come back later to one area where we think the US Department of Justice has some practices which may be of interest to this Committee in terms of giving guidance on the application of them.

Chairman: I think all of us have been exercised about that. Thank you very much.

Q294 Lord Williamson of Horton: I think we have covered points 1 and 2 pretty thoroughly but I would like to ask whether you think that allegations or facts about bribery and corruption in the UK business should be blamed specifically on weaknesses in the current law? The reason I ask is that this Committee is not a committee of inquiry; this is a committee to look at the draft law, so what we are concerned about is whether the current law is not good enough and the next one is better, and do you think that is a result of what has happened in the past?

Mr Hammond: Certainly from the Thales UK perspective we think that the current state of the law may be one of the factors but, obviously, we do not have sufficient information about what allegations of bribery are reported to the necessary authorities, what level of those are investigated and what proportion of those end up in prosecutions. All we do know from some of the brief statistics that are available is that there do seem to be a relatively low number but, of course, that could be for a number of reasons. It could simply be because the evidence is not there inasmuch as it may be because the prosecution feel that they cannot secure a conviction in an efficient manner.

Chairman: Thank you. That is a polite way of putting it, a low number of prosecutions. That is the nicest thing I have ever heard.

Lord Thomas of Gresford: I think there has been one successful prosecution since 2001 in the field of foreign business.

Chairman: And not many after 1900.

Q295 Jeremy Wright: I just want to go back a stage to the questions Mr George was asking about the read-across to the Americans. I think what I have heard from two of the companies represented here today say is that the way in which you operate is to apply the standard that would be relevant to the United States legislation across the board, broadly speaking, so that you operate to what appears, at least to us, to be a higher standard under US legislation than currently exists under UK legislation. That is certainly what Lockheed Martin do and I think I understood the gentleman from BAE Systems to say the same. I was just wondering whether from a Thales point of view you can help us with, if you do not do that, why you do not do that, assuming that you do do business in the United States under that legislation. What are the particular reasons, if you do not adopt the same practices, why you do not do so?

Mr Hammond: We do have quite substantial businesses operating in the US and therefore the US companies will be subject to the FCPA in the same way as any other US entity. However, being headquartered in France, France has decided that there are a number of standards that are available to it and we have already heard about the Woolf Report. There is the FCPA as well as other conventions, and because, as it has grown into an international and far-reaching company, it has determined that it should base its standards predominantly at the top level on international standards and then it is for the local legal entities within any particular jurisdiction to make sure that the local rules are also abided by and overlain as necessary.

Q296 Jeremy Wright: That I understand, but what I do not understand is why it is not more efficient from a corporate point of view to say, "There are a variety of different corruption standards around the world. What we will do, so everyone understands what they are doing and what our competitors appear to be doing, is to say that we will take the most onerous of those requirements and we all comply with that around the country, around the world". Why is that not the approach that is taken? Would it not be easier to understand for everyone who works within the organisation?

Mr Hammond: Indeed it may be. Unfortunately, I cannot answer that particular question because I do not know why that has not been chosen. However, what I would say is that, as we have already heard, the FCPA, for example, does make certain exceptions. It has a "reasonable belief" defence, for example. It also has a de minimis rule for certain facilitation payments, so can it necessarily be said against, for example, some of the international regulations that are out there that it is in fact the toughest one? I think in order to get the toughest position you would probably have to mix and match from a whole series of legislation and regulations and conventions that are out there.

Q297 Linda Gilroy: Perhaps I could ask each representative of each company to set out your position as to whether you accept that there is a need to strengthen corporate criminal liability for bribery. We have received quite mixed evidence, as you probably know, some people telling us it is too tough, others saying that it is only just enough not to ruin UK competitiveness. What is your view on clauses 5 and 6 and do they in your view need changing in any way? Perhaps Thales first.

Mr Hammond: Perhaps I can answer that in two parts. The first one is that you refer to the need to strengthen corporate criminal liability for bribery in this country. Yes, we fully support the Government's desire to consolidate and modernise the law and therefore, yes, in principle we are supportive of the Bribery Bill, if nothing else to meet, as we say, the perception of bribery and also perhaps to meet the criticisms of some of our international counterparts that believe our law currently does not go as far as it should. With regard to the second part of the question, clauses 5 and 6 with regard to corporate liability, yes, we are supportive of them. However, we believe that the drafting of the present Bill, particularly as it relates to negligence, to the definition of "senior officer", "adequate procedure", and particularly questions over liability of subsidiaries, joint ventures and other business constructs is something that we would like to see clarification on before it reaches the statute book.

Q298 Linda Gilroy: I think some of my colleagues might pursue some of those particular issues in a moment, but do I take it from the first part of your answer that it is more or less to set out something that improves the reputation rather than makes any particular difference to your practice at the moment? Perhaps I can phrase that by asking you will the Bill and the provisions in it make you change your practice in any way further?

Mr Hammond: There are two elements. First of all, obviously, perception is important because reputation to businesses within the defence industry is very important. As I have said before, I think it is quite difficult to determine why this country does not have a higher level of prosecutions and convictions than it actually does. That may be due to weaknesses in the law, and we accept fully that there may be shortcomings in that area, but equally it could be for other reasons. Will it change what we do? We believe that we already have a very substantial code of ethics and compliance programme. We do, of course, keep that under review and we will, of course, make any necessary changes to reflect what we regard as any change in the law. However, you must remember that there are already corruption laws. We are already signed up to the OECD Convention. We are already signed up to our common industry standard. Therefore, we believe that we already follow what is best practice at this point in time.

Q299 Linda Gilroy: So would you therefore expect it to result in more prosecutions?

Mr Hammond: That is possible, certainly perhaps until some of the messages get home to certain parts of the industry, but hopefully -----

Q300 Linda Gilroy: But not your part of the industry?

Mr Hammond: In terms of the larger members of the defence industry, and I am sitting with colleagues from very large organisations, you have heard that we do all have substantial programmes that we have invested a lot of time, effort and resource in, and therefore we believe that we have made every effort to minimise bribery occurring within our organisations.

Q301 Lord Thomas of Gresford: Mr Hammond, I think I heard you say a few minutes ago that Thales in France operated a de minimis rule, and I think you spoke of them with approval. I wonder if you see anything in the Bill to cater for that concept.

Mr Hammond: With respect, with regard to de minimis, I was referring to the FCPA which does carry it. We do not operate a de minimis rule internally within the Thales compliance programme.

Q302 Linda Gilroy: Can I ask Mr Bramwell the same question? Do you accept the need to strengthen corporate criminal liability for bribery and what are your views on the new offence?

Mr Bramwell: Firstly, the company welcomes this Bill, as much as anything because it will clarify English law on the subject of bribery. What all corporations need is clear law combined with clear prosecutorial policy. When we talk of convictions, we need to understand that convictions are a product not only of the law but of the policy associated with prosecutions to be brought under it. From the company's perspective, you will see the reaction that the company has made in terms of redoubling its efforts and redoubling its efforts again most particularly in the last two years. It is fair to say that as we read the Bill now we do not think that we would do anything that we are not already doing. We think we have a relatively high level of comfort - and I suspect other industry participants will as well - and our existing compliance systems are adequate to comply with the existing law.

Q303 Linda Gilroy: Are there aspects of the recommendations of the Woolf Committee which would suggest that the provisions in the Bill should go further if there is to be a level playing field?

Mr Bramwell: No. This Bill would provide the sort of environment in which a company like ours, committed to implementing all the Woolf Committee's recommendations, can operate with a degree of certainty and a degree of comfort that it has the right level of compliance. We welcome this Bill in broad terms. We think it is a step forward.

Q304 Linda Gilroy: Do any of the provisions need checking in any way? Do you share any of the reservations that are expressed?

Mr Bramwell: We share a number of concerns that may have been expressed to you by the CBI recently, most particularly in their written submission. The existence of a reasonable person test in terms of concluding how certain behaviour or expectations may be set we think is subject to wide interpretation and therefore could be associated with uncertainty. Like any company or individual citizen, we have concerns about creating criminal offences which are only established in accordance with civil standards. This seems to us to be somewhat unsafe in terms of risk of perverse outcomes and prosecutions. Our preference would therefore be that the conventional approach to offences is taken in terms of appropriate criminal intent being established. That said, if the standard remains, we have a degree of comfort that the measures we have taken are so significant that we are satisfied, for example, where the adequacy test applies, that our internal policies and processes will be deemed to be adequate in the event of any prosecution.

Chairman: We have a policy decision to make. There is no way we are going to finish at 4.15 with our witnesses. Either we are ruthless with no interventions, expecting short answers, or because this session is on an important subject, I think we should go on.

Earl of Onslow: It seems to me that the accusations of bribery which swirl around the arms industry are quite extraordinary. We have here four people who represent that at its highest and I would strongly recommend to the Committee that we grill these people as much as we possibly can so we can get the right answer out of them, because I think these are probably some of our most important witnesses.

Chairman: I think we ought to go on because this is a very, very important subject. As far as I can see, our witnesses are genuinely trying to forget the past - they all have form as organisations - and address the future. We are not addressing the past. We know the past. We are trying to find solutions for the future. Mr Bramwell, as you have such experience and you will obviously be in touch with your colleagues in the United States, you have criticised the Bill. You have every right to do that but when you write a memorandum would you mind doing it in some detail so that we can seriously consider incorporating it if we agree with your suggestions? Because you are a multi-national company, if you could give us a company perspective on legislation and its implementation and strength in the United States, this would be an option for us.

Q305 Mr Djanogly: On the United States legislation, the corporate offence equivalent to my understanding in the US has a defence if the company has been cleared by a regulator. This is not a concept that has any history in the UK but does the panel think that it could do in the future in relation to this Bill?

Mr Bramwell: The United States prosecutorial practice is quite different from that which we traditionally have operated in the United Kingdom. What most sets apart a very large body of legislation and precedent in the United States from a company operating in the sectors perspective at least is the availability of what is called the Foreign Corrupt Practice Act opinion procedure, wherein any company that is an issuer or is listed in the United States is able to write to the Department of Justice, describe a factual circumstance, not hypothetical but actual, how the company proposes to deal with it. Upon filing - it can be done over the internet - it will receive the US Attorney General's opinion within 30 days as to the Department of Justice's interpretation of the extent to which that conduct does or does not comply with the FCPA. This is of immense value to companies looking for certainty about how conduct would be treated and about the efficacy of their proposed approach to compliance. It is especially useful around mergers and acquisitions and new businesses that may have an uncertain history. However, it must be a significant consumer of resources and capability and I am not aware that those likely to be tasked with administering the new Act should it become so would have access to the budget or the resources to provide that.

Q306 Mr Djanogly: Should those who use it pay for it?

Mr Bramwell: I have brought with me the opinion procedures regulations, but I am not aware that there is any charge for that service at all.

Q307 Mr Djanogly: Should there be?

Mr Bramwell: A government charging for opinions as to compliance might place governments themselves in slightly difficult waters. It might be best provided as a public service.

Q308 Mr Djanogly: Other regulators are paid for by users.

Mr Bramwell: One of the things we might come on to is that there is a significant difference in ability to pay between large, medium and small companies. This Bill does not and cannot discriminate between the treatment of large and small exporters.

Q309 Lord Thomas of Gresford: I understand there is a department in the Department of Justice which deals with this giving of advice. It extends all the way, right through the federal system throughout the States. They employ something like 60,000 people. You tell us about the procedures that you have developed. Let us take a situation where an employee in a subsidiary company in a foreign country is told, "You get the contract if you pay X amount of pounds" or dollars or whatever it is. What, under your procedures, should that person then do? Remember we are talking about corporate responsibility. How far up the chain would it go before the decision is taken either not to pay or to pay? How would it be recorded in the books of the company?

Mr Bramwell: It would not go any further up in the first instance because there is an absolute prohibition globally within our company on the payment of bribes or indeed facilitation payments. The company does not believe that business obtained tainted by corruption and bribery is worth having. The company would withdraw from a procedure that it believed was tainted by corruption and then a report would be made which would go to the Global Compliance Department, which is based in the United Kingdom and also has an office in Washington DC. A report would be filed by the company with the relevant tendering government and any other regulator that was deemed entitled to receive a report by the company. There would be no escalation for a decision whether or not to pursue such a contract.

Q310 Lord Thomas of Gresford: There would be a reporting of it according to your procedures and that would go up the company to an appropriate level. Did you say that verification would be given to the country concerned that this was in the pipeline?

Mr Bramwell: It would go to the global head of compliance. Most tenders contain an obligation on the respondees to notify the tendering government of any wrongdoing associated with it or breach of the procedures. There would probably be an obligation triggered immediately to notify the government seeking the product and indeed then there would be in all likelihood parallel reporting obligations under internal company procedures and under international law.

Q311 Chairman: Is there a French and/or American perspective?

Mr Hammond: I do not know Mr Bramwell's exact procedures but it sounded very much like he was describing what the Thales procedures would be in exactly those circumstances.

Q312 Earl of Onslow: I have this problem in my mind. The President of South Africa is accused of taking a slice of the cake in something he wanted to pursue. I cannot remember what it was. We had the Hinduja brothers convicted of something to do with guns and the Indian Government. I cannot remember. Obviously Saudi princes seem to like getting a slice of whatever action there may be. I can understand your answer to Lord Thomas about an agent at a relatively low level. When you get somebody at that level saying, "I control the whole defence budget and unless you go through my agent who has a Swiss bank account, you will not get the contract", you and I know that is bent. You and I also know there are large numbers of people, either in Aerospaciale or in Flincher, who are earning their living making widgets to go into machines which kill people. How do you get round what seems to be a real problem of people who are total controllers of that budget? It is not like just an agent in a company but these are people right at the top who are determined to help themselves. I ask this as a seeker of information.

Mr Garwood: I think the answer is you do not get round it. You just do not take the business. If you are asking will British industry lose business as a result of this Bill, the answer is almost certainly yes. Businesses, ours included, will decline business. If you ask me have we done so, we have declined business on this basis and will continue to do so because our rules are absolute. That is our position. There is no variation from that.

Q313 Earl of Onslow: Are you honestly telling me that, if you were asked to sell X numbers of very expensive aeroplanes to company A with all that that entailed, you would say, "I am being whiter than white and I am going to turn it down because I am not going to allow the Defence Minister's first cousin's agency, wherever it may be, to take a slice and I know that one of your other competitors is going to try and take it"? Would you honestly turn that down? It is a moral dilemma which I quite see is extremely difficult and I am not attacking you.

Mr Garwood: The answer is unequivocally yes. We would turn it down. I repeat: we have turned down business. It is bad for Britain and for British industry to take business on those terms.

Chairman: A lot of what we are considering takes this into account very strongly.

Q314 Lord Lyell of Markyate: I am going to move to question four, which is very closely related to what we have been discussing. If I may say so, gentlemen, we have the privilege of having before us four high calibre people who understand this subject and I have not at the moment been able to fault a single answer. What we have to decide is not your calibre; we have to decide what is the right Bill to put into English law. There is a serious question in relation to clause 5 which effectively gives a defence of having in place adequate procedures. Some people are suggesting that this should go wider - I am not sure whether it would or it would not - by saying that you should be automatically liable if a bribe has been made in the company's name except where due diligence is established or adequate procedures are in place. You will see the similarity of the wording but do you have any views as to whether you prefer the Bill as it stands or do you think it should be widened in that way?

Mr Ball: My background is as an engineer, not a lawyer. Although I lead a business, what I seek is clarity, something I can understand. If you want Lockheed to comment on the detailed provision of this, we would prefer to do that through a written submission.

Q315 Lord Lyell of Markyate: You have two very good lawyers on your team.

Mr Ball: I bow to their superior knowledge on that.

Mr Hammond: Would we wish to see it widened? No, I do not believe we would. As members of the CBI we support the written evidence that has been submitted and the concerns raised particularly about the adequate procedures defence and its availability particularly relating to the definition of senior officer, which includes managers, which seems to be a very broad category of people and does not necessarily reflect the seniority within the organisation. If that were to remain there, there is a risk that the defence is taken away immediately because the negligence would be deemed to be on the part of senior officers. Our understanding of the Bill is that that would take away automatically the defence of having adequate procedures in place, which we believe is rather unfair in certain circumstances.

Q316 Lord Lyell of Markyate: If there is a blind eye at too low a level, it is not fair on the corporation?

Mr Hammond: I would not put it in those terms but we are concerned about the fact that it is possible for a corporation to be convicted under clause 5 without having intent.

Q317 Lord Lyell of Markyate: In terms of a sufficiently senior level?

Mr Hammond: In terms of a sufficiently senior level and there may well be extremely good procedures in place. However, due to the acts of one particular individual at a relatively low level, there would almost automatically be a liability on the part of the corporate entity.

Mr Bramwell: I would respectfully agree with Mr Hammond. That is precisely the position that BAE Systems would take. Large companies are well experienced in terms of operating sound systems of internal control across a wide range of activities. They have to comply with a plethora of rules and regulations and they have the resources necessary to be able to do so. What is required is a degree of recognition in the law that there are no absolutes. In a family business of six or seven people, one may have absolute confidence as a board member that you can vouchsafe for every member of your business. By the time you get to 100, it is more difficult. 1,000 is more difficult. Over 100,000, you are dealing with much more complex organisations. You are talking about exhaustive training procedures and sophisticated compliance and oversight programmes. The defence as drafted, subject to the caveats of the CBI input, is balanced but I would echo what Lord Woolf said in his report. Boards should absolutely take responsibility for the effectiveness of their internal controls across the enterprise. If there is aberrant behaviour, and there will be statistically in 100,000 people on a fairly regular basis, provided there is a sound system of internal control that, in my view, for the corporate practitioner, should not lead to criminal liability. If the tone from the top is wrong, if there is a sense that there is a blind eye turned in the board room to the winning of business and the terms upon which it is won, I think this Bill gets it just about right in broad terms, in terms of making it clear that those in the board rooms of companies doing business internationally must take this issue very seriously indeed.

Q318 Lord Goodhart: You say that what is desirable here is clarity and I agree with that but would it not be simpler and therefore clearer to cut down some of the provisions of clause 5 and say that, where you have somebody acting on behalf of the company who has committed bribery, the company is liable unless it can prove due diligence? That seems perfectly straightforward. I think it goes with what you have said, Mr Bramwell, about the duty of the board. That spares you the trouble of having to define who has been negligent. Also, the problem is that absence of due diligence cannot be pinned on any particular individual or group of individuals. Would that not be a simpler and therefore better way of proceeding?

Mr Bramwell: I understand your point and I think it has much merit. The only observation I would make in response is that we are dealing here in prospect with a Bill which will affect a very wide range of businesses in England and Wales. If I tell you that it routinely costs in excess of ₤20,000, sometimes ₤30,000, to carry out due diligence on a single individual before you engage in a business relationship with them overseas, that is an expense which a high value, low volume contractor such as a defence industry contractor can absorb and invest in an attempt to win business. If you are a medium sized, infrequent exporter of relatively low value goods, it will be extraordinarily difficult to make that sort of investment in due diligence as we call it in large companies. Negligence at least has a situation of awareness around it when it comes to be considered by a court.

Q319 Lord Goodhart: I think adequate procedures might lead to a problem.

Mr Bramwell: Yes. My only concern is that one would have to have confidence that the prosecutorial or investigative authorities were aware that one size could not fit all in this case. What it is reasonable to expect a large, multi-national to do it is not reasonable to expect a medium sized enterprise in the provinces to do. Their business would simply be non-viable.

Q320 Lord Thomas of Gresford: Drafting takes that into account obviously. The jury would ultimately decide in a prosecution and they would have regard to all the circumstances in which due diligence was exercised, including the size of the company and the cost to the company of doing more than they actually did. The difference here is between putting the burden of proof beyond reasonable doubt in negligence upon the prosecution or putting a burden upon the defence on the balance of probabilities to show due diligence. Which would be simpler from your point of view, do you think?

Mr Hammond: Given the serious consequences that would arise as a result of a criminal conviction, I believe that it should be for the prosecution to show beyond a reasonable doubt.

Q321 Lord Thomas of Gresford: Negligence beyond a reasonable doubt?

Mr Hammond: Indeed. We believe that negligence does not carry the necessary intent for such a serious crime and we would very much hope that a higher test would be required.

Lord Goodhart: All the information is in the possession of the company.

Lord Thomas of Gresford: That is the burden of proof point. You cannot expect the prosecution to have access to all your files and procedures in order to show negligence; whereas, if the burden were upon you of showing on the balance of probabilities that you had exercised due diligence, you would have ready access to all your documentation in order to establish your case. From the point of view of the court and a jury, it is far simpler, as Lord Goodhart has pointed out, to have the burden of proof proving the defence upon the defendants who are in possession of the facts.

Chairman: Send us a group brief on this.

Lord Lyell of Markyate: Would not the same discovery be necessary whether it had in place adequate procedures as in the Bill or had to prove due diligence? Would there be a difference?

Lord Thomas of Gresford: It would be for the company to prove adequate procedures. To put the burden on the prosecution of proving negligence and then of proving that it is negligence for example of a senior officer and so on is a very considerable burden for the state to bear when what we are postulating is vicarious liability for a bribe that has been committed by somebody in the name of the company. That has happened. That is the sine qua non of a prosecution. You have to prove that. It should then be, it seems to me, for the company from its books and records, to show that they have acted with due diligence and then the burden of proof would be less upon them.

Lord Lyell of Markyate: That is a fair point. In other words, the prosecution might fail at the first fence, so the defence would not have to succeed at the second fence.

Lord Thomas of Gresford: They would not have to raise it. The case would be thrown out half way if the prosecution failed to prove prima facie that negligence had occurred.

Chairman: That little exchange will cost you at least ₤50,000 on the open market afterwards.

Q322 Martin Linton: Can I ask Mr Bramwell to tell us, in a letter if necessary, what this ₤20,000 consists of to investigate due diligence on the part of one individual? Is that legal fees? If you can tell us now, so much the better.

Mr Bramwell: There are specialist providers of deep background research on companies and individuals overseas, some of whom are based in this country, some of whom are in the United States. That would be a fee which is not untypical for them to charge for a deep background report, which is the sort of thing you would need to comply with the policies which companies such as those before you today operate.

Q323 Martin Linton: An investigator?

Mr Bramwell: Yes, to conduct what we in the industry call due diligence on individuals with whom the company is considering doing business. It is an expensive proposition.

Q324 Chairman: It would involve private investigators?

Mr Bramwell: They have become public companies in their own right now. A point that I have made to the Minister for Justice is that there are two observations here. Firstly, that the United States again, in terms of its practice in this area, holds central databases on screened individuals with whom companies may choose to do business overseas, which will save US companies very significant costs. Also, the United States embassies, consulates and commercial attachés are very supportive of American businesses' local needs in terms of finding appropriate people to do business with. That is not the case currently with British embassies generally if you do not have commercial attachés associated with them. It is an area that I believe the Foreign Office might consider providing support in because there are significant consequences for British businesses of this type of burden, particularly for the medium sized exporter.

Q325 Chairman: You have tried that, have you, and they have said no?

Mr Bramwell: It is not that they have said no. They have very limited resource in many countries and they are not able to provide the customised service to support British business in the way that US embassies will support American businesses.

Q326 Linda Gilroy: I have been sitting here thinking how this applies to a particular characteristic of defence contracts. It is something you mentioned in the Woolf Committee report, offset. I will not try and describe what offset is because this is a question particularly for Mr Bramwell. Would you agree that getting this right is probably the remaining biggest risk to reputation, having due diligence and procedures which ensure that issues of offset are dealt with in a transparent manner, and will the Bill have an impact on how you and other companies deal with it? What impact is it likely to have on trends in offset being a feature of most big defence contracts?

Mr Bramwell: That is a very good question. Offset is not generally something that is proffered by defence contractors. It is more likely to be something requested by governments putting work out to tender. There are various forms of offset and they require long term presence and, in many cases, in country delivery. The same degree of rigour needs to be brought to bear with regard to offset arrangements as it does with the original contract. If you operate, as BAE Systems does, a risk assessment based approach to doing business locally, there are significant risks associated with offset because credits are awarded by government departments in return for work done. They may not be linear with the cost of the work. We are currently yet again revising thoroughly our offset processes and policies to ensure that we apply the same standards to offset as we do to business winning generally. I do not expect offset to decline, because it is a feature that government buyers of defence equipment wish to see and indeed stipulate in their contracts.

Q327 Mr Borrow: If we can move to clauses 1 to 4 of the draft Bill and perhaps look at the wording of those clauses and the way in which it relies on concepts such as an expectation of good faith and whether payments were permitted under law applying to a foreign official, I think it would be helpful to the Committee if the three businesses represented could let us know whether they feel the wording is clear, predictable and fair from their perspective and, if not, how it could be improved. Would guidance be one way of improving what is currently on the table?

Mr Hammond: In principle, Thales is supportive of the defences under sections 1 to 4 of the Bill. However, again we have concerns with regard to the drafting. You have just mentioned such issues as acting in good faith, impartiality and being in a position of trust. Obviously I was a little concerned when Professor Horder said in his evidence that these were not the civil law concepts as we know them and that these were matters to be determined by the jury. I am sure the jury would be guided by the judge in any particular case, but if those particular concepts are not to have their civil law meanings and connotations the question is what meanings do they have. Business will only find out on a case by case basis as prosecutions abort and as clarification is given in the reports. One thing that businesses want is to stay out of the courts and therefore clarity of their obligations in advance, so that they can take the appropriate measures and put in place the appropriate means to prevent breaches, is obviously our preferred route. We would wish for clarification, either on the face of the Bill with regard to those particular issues, or alternatively in the form of guidance. Here I appreciate that guidance, particularly if it emanates from a government organisation, is unlikely to carry the necessary weight to be a complete defence. Perhaps I can take by comparison the health and safety legislation and the guidance that is given by the Health and Safety Executive. It is not mandatory for companies to follow that guidance. However, they do not do so at their peril unless they have a very good reason and can justify otherwise. Perhaps that may be one possibility for how the guidance can be given.

Q328 Mr Borrow: Are either BAE Systems or Lockheed Martin in agreement with that or do you want to add anything?

Mr Ball: As somebody trying to be compliant with the law, if I had to turn to a lawyer to explain to me what these terms mean, it is less useful. The example of health and safety law is a very good one.

Mr Bramwell: I would agree wholeheartedly with Mr Hammond's remarks.

Q329 Baroness Whitaker: Taking the interesting example you give of the approved code of practice under the Health and Safety at Work Act and still on the question of clarity, do you think there are other areas in the Bill which are too uncertain for companies to implement and that this could be resolved through the provision of guidance of an authoritative kind? The phrase "adequate procedures" comes to mind. I am not aware of anything quite so specific in your own guidance. The Woolf Report very properly endorses your ban on facilitation and it has some very tight controls it offers on subsidiaries and joint venture syndicate partners. Do you see merit in spelling out the meaning of any of the terms in the Bill?

Mr Hammond: Yes, we do see merit in clarification.

Q330 Baroness Whitaker: Which ones?

Mr Hammond: As we have previously mentioned, particularly the concept in sections one to four relating to issues such as good faith, impartiality and being in a position of trust. Also regarding the term "improper performance". Then we move on to the corporate offence. Further consideration and clarification would be welcome by Thales if the definition of "senior officer" and perhaps I could point the Committee in the direction of the Corporate Manslaughter and Homicide Act which has a definition of "senior management" which we believe much more closely reflects the control in mind and those at the highest levels of responsibility rather than what is offered in the draft of this Bill. Likewise, as we have mentioned, I do not know whether the same comment applies if Professor Horder was asked. He has obviously stated that a number of the terms in this Bill he does not see as being the same as we would understand them under the civil law. I wonder if that can be the same as negligence. He refers to the Manslaughter Act as one of the areas where he says that he leaves the concept of negligence to be determined by the jury. Interestingly enough, the Manslaughter Act does not refer to gross negligence. It refers to a gross breach of the duty of care that is owed and stipulated in that legislation. Interestingly, the drafter of that Act determined to embody in the legislation their understanding of what they required with regard to duty and care and the test that was to apply with regard to determining whether there had been a gross breach; whether that clearly reflects aspects of negligence from the civil law. Whether it is exactly one of those things we remain to see because the first prosecution under that Act is still pending. There are very recent examples of where, on the face of the Bill, clarification and clear guidance has been given and obviously if it is incorporated into one single document that would be preferable, but we are equally in favour of guidance issued by other authorities if that is the chosen route.

Q331 Baroness Whitaker: Do you think any such guidance is capable of international agreement? Is that a realistic proposition, sector wide, say?

Mr Hammond: Within the defence sector, there are very strong efforts being made, certainly within the European defence and aerospace industry, to adopt common standards and for each of the members within those countries to lobby their parliaments in order to make sure that there is consistency across the piece. Ideally, I would like to say yes. I would like to think it was possible but I do see a number of practical difficulties to that, even in terms of signing up to the OECD Convention, for example, and some of our international partners as to whether we have complied wholly with incorporating the terms of that Convention into English law.

Q332 Baroness Whitaker: You think it is worth a go?

Mr Hammond: Certainly.

Q333 Mr Carmichael: I am interested in your parallel with health and safety legislation and the issuing of guidance as part of the corpus. If you go back to the primary legislation, the Health and Safety at Work Act, that is drawn very widely. It imposes certain very general duties in relation to occupation of premises, the provision of a safe system of work and the rest of it. Hereafter, there is a vast body of regulation which for all practical purposes is what businesses will look to in terms of the construction of their policy. Are you telling the Committee that that is something that you would find acceptable; that you could accept the somewhat novel concepts that there are in some of the provisions in clauses 1 to 4 if you were given that secondary guidance? Is it also your evidence that that would be preferable, in your view, to having the guidance provided in primary legislation?

Mr Hammond: It would partly depend upon the timing of the guidance. One thing that business does like to see as far in advance as possible is what its obligations may be, because it gives it time to prepare, to review its own practices and procedures and, if necessary, to amend those and bring them into line. As a lawyer, I would have to say it is obviously much easier to read one single document and to refer to one particular point of reference, but we are equally used to rifling through numerous documents, sources and points. I would have no particular objection to following the format of secondary guidance.

Q334 Mr Carmichael: That would effectively cure some of the objections that you have to the novelty of some of 1 to 4?

Mr Hammond: If that guidance was forthcoming either contemporaneously or very shortly after the primary legislation and ideally before there are any pronouncements perhaps through the courts, yes.

Q335 Mr Djanogly: Are facilitation payments and corporate hospitality adequately addressed within the Bill or in effect is it best left to prosecutorial discretion, or should there be de minimis limits put in for instance?

Mr Bramwell: I think we are at the de minimis level, certainly in relation to hospitality, especially in these strained times. I do not think that it could sensibly be argued in relation to defence contracting that almost any amount of corporate hospitality within normal bands could be viewed as amounting to something that would sway a decision maker's opinion one way or the other. Corporations have extensive policy process around corporate hospitality now and I believe governments and members of the Armed Forces most certainly do have very significant restrictions on the hospitality they can accept from the industry in our sector. As far as facilitation payments are concerned, you have heard BAE Systems' view. It is at one end of the spectrum. Our policy recognises that, where the safety or welfare of an employee would be placed at risk by refusing to make a facilitation payment, they may make that payment, provided they immediately report it. From my perspective, these are at the petty end of the spectrum with which this Bill is concerned and not something which should cause the draftsman or yourselves a great deal of time, given that the industry is I think across all sectors capable of regulating itself.

Q336 Mr Djanogly: Was that just a call for prosecutors to be careful or do you think the de minimis provision should go into the Bill?

Mr Bramwell: I think the de minimis provision should go into the Bill.

Q337 Lord Mayhew of Twysden: Would you accept that, if somebody were to adjust the way in which he performs a function by reason of having accepted hospitality, that would be an improper act on his part? If that is something that has to be accepted - I think I see you nodding but I do not want to put words into your mouth - it is very difficult, is it not, to see how the Bill as drafted excludes liability for the offering of hospitality, because presumably people are offered hospitality with a view to encouraging the exercise of a discretion in their favour? I wonder whether you are relying, because there is not enough clarity in section 1 on the good sense of prosecutors, in which case you can hardly rely on the good sense of a private prosecutor perhaps to the same extent.

Mr Bramwell: That is a fair observation.

Mr Hammond: I do not think this should be left to prosecutorial discretion. We are obviously all fully aware of hospitality and facilitation payments and therefore, particularly as there is precedent for dealing with this in other legislation - the FCPA for example and the OECD Convention mention it - why could we not deal with it in the Bill? Let us tackle the issue head on and give certainty to the matter. We understand prosecutorial discretion and how it currently operates, but perhaps that is just simply a reflection of measured public opinion at any point in time. That may change.

Lord Williamson of Horton: I do not ask for an answer but I do want to make this comment on facilitation payments. If one of your employees is asked to pay a few thousand dollars to, say, a party official in country X, you have to count that as a bribe. That is the law in this draft legislation. Your American competitor can take out a big bank roll and hand it straight over because, under American legislation, it is explicitly excluded from being treated as a bribe. It is a nice little gap available to American exporters owing to the very lax drafting, deliberate, of the American legislation.

Chairman: We appreciate your answers and we would appreciate even more your writing to us. I must rush in and defend the United Kingdom on these great charges that there are no prosecutions. The jewel in the crown of prosecuting frauds and bribers was Gordon Richmond Foxley, director of ammunition procurement, who was sent to jail for four years and served two years in Ford Open Prison. Part of the sentence was that unless he paid ₤1.5 million within 18 months he would have to do the four years. They forgot and when finally it was remembered the government went to the High Court and they were told, "Too late, mate", so even when there is a success it turns out as a grotesque failure. I hope that this legislation will eventually get through. If there is bribery, as I am sure there is, I hope the perpetrators at whatever level at long last in this country feel the taste of justice and not in Ford Open Prison. This will not affect any of you gentlemen, but thank you very much for coming. We appreciate it.

Witnesses: Mr Jeremy Cole, Bribery and Corruption Taskforce Co-ordinator, Lovells, Ms Louise Delahunty, Partner in Crime, Fraud and Investigation, Simmons and Simmons, and Mr Monty Raphael, Head of Fraud and Regulatory, Peters and Peters, gave evidence.

Q338 Chairman: Thank you very much for coming. What is your general reaction to the Bill? Is it good enough? Is it better than the last one? Can you live with it? Were there mistakes? How can they be remedied?

Mr Raphael: Thank you for inviting me. I am a solicitor in private practice and have been for almost five decades. I am associated with a number of organisations that have campaigned for a reform of the bribery laws, but the opinions I am about to express to you and your noble colleagues are my own and do not represent any particular organisation. I hope they simply represent common sense. It is a matter for you and your colleagues to judge. My personal reaction to the draft Bill is that I welcome the initiative that has produced a draft Bill so that we are nearer having some legislation. I share the view of the majority of the legal profession in finding it rather sad that it is 103 years since Parliament last reformed the law. As a lawyer, I am very conscious of the criticism that has been levelled at this country for its failure to reform the law and its alleged adherence to our treaty obligations under the OECD Convention. All my other remarks must be seen in the context of my general welcome to the prospect of legislation and I earnestly pray that after your deliberations and your Committee report that legislation will be introduced into Parliament and that it will pass into law in this Parliament and will not have to wait to be introduced or reintroduced in the next Parliament. So far as the Bill itself is concerned, I echo some criticisms that have already been made by witnesses before you as to presentation. It seems to me the Bill is unnecessarily formulaic. I do not applaud the modern draftsman's practice of giving initials to various players, Ps and Rs and so on. I do not applaud the way the conduct is split into cases, conditional functions and activities. If that is thought to be cavilling, I would rather have these grammatical and presentational imperfections than no legislation at all. Very briefly, when we come on to it, I would like to be given the opportunity of addressing you about the corporate offence and the offence of foreign bribery. If you will forgive me, perhaps I can just impose upon you for one more minute by way of general remarks. I think the Bill has to be seen in the context of our general crime control policy in the way things are arranged in this country. As was obvious from your previous session, there is going to be under the structure of this Bill a great deal of reliance on prosecutorial discretion, so it is a question really for you and your colleagues to consider whether that is the correct way forward. I personally favour the exercise of prosecutorial discretion over the insertion into this Bill of more prescriptive obligations. I think it is difficult to prescribe conduct in this way. I think this has already been addressed to you by Professor Horder, who is the chairman and architect of the Commission's legislation. We are quite familiar in this country with allowing community justice in the form of jury trials to determine the conduct standards, the ethical standard that we require of our citizens. We do it all the time as lawyers and there are many lawyers sitting in front of me, rather frighteningly when I am addressing a number of very senior lawyers. The test of dishonesty which informs jury decisions every day in our courts is based on an assessment of what is acceptable in our society, given the peer group of the suspect or the offender, and I see no problem at all in importing that concept into this legislation at least so far as offences in clauses 1 to 4 are concerned. I am troubled, as are so many other people, by the concept of criminal negligence in clause 5. The issue of hospitality I think is best left to discretion and to the good common sense of a jury, as are facilitation payments. I do not regard the failure to have a level playing field with our American competitors on the FCPA as disqualifying that. I want to say one thing about debarment, which I know is very troubling to the commercial community. Thank you very much for allowing me to make these preliminary remarks.

Q339 Chairman: You can send us a detailed brief afterwards.

Ms Delahunty: Again, some preliminary remarks from me. Like Monty, I am a criminal lawyer, a business crime lawyer, but I work for a City law firm which has offices around the world, so I advise many corporates in many industries and welcome this Bill as a way of bringing some certainty and improving our reputation around the world. I am concerned though, looking at the Bill as a criminal lawyer and looking at how it may be prosecuted, about some of the terminology. I tried to envisage the trial. I hear what Monty says about how juries have to decide matters of dishonesty, and indeed we have witnessed that happening in many cases, but where a jury is being asked to look at good faith, impartiality, trust and all those other issues one has to remember that there will be a whole range of industries involved. I know from my practice that these industries are very specialised in their nature, whether you look at the energy industry, the oil industry, the pharmaceutical industry. It troubles me about how this will be prosecuted and whether the prosecution will have to educate the jury on what is to be expected of this particular, reasonable man, how complex that is going to be and how long that is going to take at a time when we are being encouraged to make sure that fraud trials are short and not so expensive to the state. That is of concern to me. The other concern I have, having read Professor Horder's evidence, is that the answer seems to be when an issue is raised, "Well, we will have some guidance. There will be some guidance on what these terms mean. There will be some guidance on adequate procedures for the corporate offence." The concern here is you have companies which will be dealing with these issues around the world. At the moment you have a plethora of guidance from a number of trade bodies internationally. You have different levels of guidance, depending on which country you are in. To give some certainty to the companies that are going to have to train their staff is a major issue here. There is a query in my mind about if you have a clear law really how much guidance should you need, but if you do need guidance how are you going to help the business to deal with that guidance, I think with the assistance of government. One example which I can speak more about if that is helpful or put in writing as we are late in the day is to look at the anti-money laundering law model that we have in this country and the fact that to enable the much wider constituents who are now regulated within the money laundering law to deal with their duties, professional bodies for each constituent part for banks, for lawyers, for accountants, for trust company service providers and now for fine art dealers and a whole range of very popular people, including estate agents - who may even be said to be more unpopular than lawyers - draw up their own guidance, submit this to the Treasury, the Treasury blesses the guidance and then this is used in prosecutions. I do not know if that might work here but at least it gives those in those sectors something to look at and work on. Here I am a bit concerned about all this discussion of guidance and how our clients are going to get some certainty about how they should deal with this on the risk management side.

Mr Cole: Good afternoon. Just by way of background, I am, like Louise, a City lawyer advising corporate clients on aspects of bribery and corruption. That is really my perspective on this. The question I asked myself was broadly will the Bribery Bill be effective. I think quite clearly the answer to that is yes, but I went on to ask two specific questions. One was: will corporates put in a stronger compliance regime as a result of this Bill. Again, my response to that is yes. You have heard from earlier witnesses this afternoon that they already have strong procedures in place, sophisticated procedures. I think even those corporations will review their procedures as a result of this Bill, which must be a good thing. There are many out there that do not have procedures. As a result of this Bill, my sense is that they will look and inspect for themselves as to what they are doing and put in procedures, which again is a good thing. The second question I asked, which is coming at this in a slightly different way, was will corporates self-report when they have problems. My answer to that is probably no. Our system is focused on prosecutions. As an aside, I was concerned that the Ministry of Justice has already estimated that this new corporate offence will result in additional prosecution an average of 1.3 per year, which does not sound particularly threatening. Does the Committee want to encourage a culture of self-reporting, as is very familiar in the US? What are the advantages? It identifies positively which corporates have issues and ensures that they clean up their act. It enables prosecution authority resources to be spread far wider. It assists in identifying the hotspots in particular industries where there are problems of bribery. It clearly raises awareness and publicity based on what we have seen in the US. Corporates will not self-report unless there is a real opportunity to avoid criminal prosecution. Many of these industries will be concerned, as I am sure you have already heard, about mandatory debarment in relation to defence procurement, so procurement contracts in the defence industry and the construction industry. Some of these businesses survive on procurement work. If they get a criminal conviction, their business could collapse overnight. If they are going to self-report, they have to know what the path is ahead of them. They have to have a pretty clear understanding of what that involves. In the US there is a well travelled track in terms of deferred prosecution agreements with civil fines. In the UK we do have a US-style approach adopted in the situation of cartels. Both the European Commission and domestically the OFT do have a guidance and leniency programme. The comparison is not quite direct because in that situation the corporate is fined. There are not criminal penalties. There are enough analogies there to say maybe there is an environment here where we could encourage corporates to self-report on the basis that they know or have at least a better sense of what they are letting themselves in for. Thank you.

Q340 Lord Thomas of Gresford: Mr Raphael referred to the simplicity of dishonesty and how it is interpreted by juries every day in every court without any difficulty. It is quite an easy concept, I should have thought, to consider whether X bribed Y and whether Y received a bribe from X. These are not difficult concepts. When we come to clause 3 where we are asking the jury, under sub-clause (8), to apply their test, the test of a reasonable person, what is it that they have to look at? They have to look at whether a person comes within condition (a), (b) or (c), whether he is a person who is expected to act in good faith, expected to perform something impartially or is in a position of trust. Then the jury are going to ask what is the relevant expectation of that particular person and individual in whatever position he is in. The summing up could be something of a nightmare, could it not, with something as complex as this?

Mr Raphael: I think the summing up in white collar crime is always difficult. This is central to the issue of whether we should have jury trials at all in fraud or related matters like corruption. It is a debate that is still pending really in this Parliament, where we have the means to do away with jury trials in certain circumstances but, so far, that has not been implemented because we treasure the idea of community justice. I can only be anecdotal about this. I have sat through many white collar crime trials, some of them of the most immense complexity. Where they are presented skilfully, as they normally are in the higher courts, by skilful advocates, where the summing up is done by extremely well-qualified and eloquent, experienced judges - we have special training now for judges to deal with complex cases of this kind - I myself believe that they can be explained to a jury. I do not believe we need special juries. All I think we need is attentive juries and skilled advocates and the elements of the offence can be explained. I do not say this facetiously: if the judge can comprehend the elements of the offence, he can enunciate them to the jury. The problem is to make sure that the judge is well-trained and used to these concepts and can himself comprehend them. Otherwise, if we abolish juries, we will have judges alone and of course judges will have to tell us why they came to their conclusions. I know from my own experience that many judges would rather not try white collar crime because they do find it intellectually very challenging, but we have a very high level of judiciary in this country. I have little doubt that that could happen. I have heard very complicated Stock Exchange frauds explained to juries who had never come across share before, who knew nothing about a limited company or how it was capitalised and so on. It was Janet and John meets the Stock Exchange and yet they were able to judge and distinguish between the guilt or innocence of a variety of accused, acquit some, convict others and so on and there were no viable appeals. I have every faith in this. It is difficult. These are difficult concepts.

Q341 Lord Thomas of Gresford: What I am actually asking you is whether this requires all the complexity in clause 3 and the introduction of concepts of good faith, impartiality, positions of trust and relevant expectations or whether we could not simplify the wording to a very considerable degree?

Mr Cole: My sense is that it is overcomplicated. The concept of what we are talking about here, the underlying lack of integrity, can be put in a much simpler way, but to subdivide it into three seems to me to be overcomplicated. I am sure, as Monty says, that we can get around that but it seems to me we are taking this too far, it is lawyers taking this to an extreme.

Q342 Lord Thomas of Gresford: It is a lack of trust in the jury system really, is it not? The pressure for trials with a specialist jury of City bankers has been slightly eased in recent months. The concept of community justice is clearly far better than specialist justice with people applying their own standards. The Committee are concerned as to whether this is overcomplicating and whether it can be simplified and presented in a much easier way.

Mr Cole: My sense is it can is the answer. My sense is that those three subdivisions could be collapsed into one and still retain the very element of what you are trying to get at through this Bill.

Ms Delahunty: I think you have to look at what would happen with a defence hat on, what is going to be expected of the reasonable man, and it is to be explained to the jury. You do often get in these cases that the prosecution will call an expert to say what is expected of the reasonable business executive or the reasonable solicitor who is being prosecuted for mortgage fraud, for example, what standards are expected, but then the defence will call another expert to say ---

Q343 Lord Thomas of Gresford: We successfully managed to exclude in a mortgage fraud I did recently a so-called "expert" solicitor to tell us what was expected. Sorry to interrupt.

Ms Delahunty: Sometimes if they are not excluded you can have a battle, you can have two experts. If the jury are going to be educated on the particular business so that they can think about what would be reasonable we want to make sure that the prosecution do not have to jump through so many hoops. I would advocate that this is very, very simply defined and agree that it could be drafted in a better way.

Mr Cole: The only thing I would add to that is the question of reasonableness and whether you need to make some reference to what you are measuring against and whether you need something in there along the lines of acceptable standards of integrity, international standards of business, something which gives it a position. That is just a suggestion.

Lord Thomas of Gresford: It might be a question of evidence in that particular case, of course.

Chairman: Thank you. That is very helpful but put pen to paper, please, because we have to provide, if we can, an alternative to the Bill so we would welcome your assistance.

Q344 Lord Lyell of Markyate: You have got question 11 in mind. Clause 1 requires an individual to know or intend that "improper" performance has or will arise, but the passive bribery offence can be committed by an individual who has no knowledge or intention of this kind. Do you think there is a misfit between these two offences and does it matter? I am just going to add one rider to that because you have been saying that dishonesty is a concept which frankly juries do not find difficult to understand. Dishonesty, although it has been said in previous cases that it does not apply and that in other cases it does, there is some judicial conflict on that, is a very clear and long-established concept. With those matters in mind and with a good deal of sympathy for your view that this could be compacted, but a little bit of trepidation since we have been round the course so many times, what is your answer to question 11? Should we stick with intention or is it sufficient that you can be guilty with no knowledge or intention?

Mr Raphael: It is always my fate to be asked to deal with the most difficult questions on these occasions!

Ms Delahunty: Do not worry, I will chime in. I just thought you would say it first.

Mr Raphael: I understand what was in the mind of the draftsman of these clauses in this way: although quite rightly you say that dishonesty is always said to be an unnecessary element in bribery, something which I think the average layman finds very difficult to understand, how you can have an honest bribe, nonetheless I can understand why it has been framed in this way insofar as the idea really is to discourage people from asking to be bribed in some way, either financially or be given some other advantage. It is to discourage people from asking for presents, gifts, advantages, tickets for Glyndebourne or whatever it is that is thought to be heinous. It does not trouble me for this reason: it has not caused us any problem in the area of domestic bribery at all. We have not looked for the element of dishonesty, although in a recent case called Kensington it was said that you could not receive a bribe unless you were dishonest. Leaving that on one side, I think this is really helpful when we get to clause 4 and the bribery of foreign public officials because we have to bear in mind that we do not want to put on to the prosecution here any kind of burden concerning themselves with the state of mind of the receiver of the bribe. The thrust of the OECD is to deal with the supply side and to concentrate on the knowledge and mental element of the briber rather than those who receive the bribe. I am not troubled by it. I do not think it is a mismatch and I do not think it is going to create forensic problems.

Ms Delahunty: I have a basic concern about a criminal offence that involves a lack of intention just on basic principles. I know that there has been some criticism of this saying this makes this an absolute offence without any intention, any mens rea. I hear what Monty says about this but I have concerns about whether this sets a precedent for other absolute offences. I am not sure how it is justified.

Mr Cole: On a drafting point, I think there is a timing issue here. For some of these offences, the offence is not complete until you have intention, and an example of that would be under clause 2(2), whereas under clauses 2(3) to 2(5) it seems the fact is the recipient has performed a function improperly and received money for it. It seems that in those circumstances the offence is already complete without the intention having to be proved, so that the recipient cannot be heard to be said, "We did not intend there to be any connection, as it were, between the performance and the advantage that he gained" because it is inherent in the factual circumstances that are being suggested under clauses 2(3) to 2(5). Just from a pure drafting point of view it does not give me a problem.

Q345 Lord Lyell of Markyate: As you say, 2(2) does require intention to obtain business or a business advantage and then you have also got to give a bribe. If you intend to get a business advantage and give a bribe there is quite a lot of intention there.

Mr Cole: Yes.

Q346 Lord Lyell of Markyate: I would have thought it is easy to infer dishonest intention.

Mr Cole: Which is what you have under 2(2).

Q347 Lord Lyell of Markyate: Except that it does not say it must also dishonestly intend. It is implicit.

Mr Cole: Yes.

Q348 Lord Lyell of Markyate: I have a revulsion really against the use of the word "improper" but so many academics seem to love it and the Law Commission that we may be fixed with it; time will tell.

Mr Cole: My reaction to this is this is not the biggest issue in this Bill by a long way. I think some of your later questions to me give rise to far more important points.

Mr Raphael: Can I just say this colloquially. I think it is meant to deter people, either public officials or those in a position of trust, fiduciary positions, from holding their hand out. This is meant to be a deterrent, an absolute bar, people must think twice before they ask or receive anything. That is how I see it and I do not see the harm in that. It may be too puritanical a view and maybe Puritanism comes with senility, but that is the way I see it.

Q349 Mr Cox: Is not the problem that the word "improper", which I must confess I cannot recall in a criminal statute other than this one, covers an enormous range of behaviour that may, while being improper, nevertheless not be appropriately brought into a criminal court? The example I gave to some of your predecessors yesterday was a training department in a City bank which is doing rather well and the next door bank rather likes the cut of their jib, so they say to one of the deputies in that department, "Tell you what, you go and persuade your colleagues to come over to us and we'll offer you a very attractive set of incentives and packages that will be much better than you're getting where you are now" and X goes into his trading department and starts talking to his friends about leaving that bank. Now, unquestionably he has an implied duty of good faith in his contract of employment and you could very much argue that what he should not be doing is going and bringing people round to the other bank. It seemed to me to comply with every single requirement and ingredient of clause 1. He would be offering a financial or other advantage, the bank that is trying to poach, because it would be the package that you are going to get when you turn up, he is breaching an expectation of good faith because he should not be going round in good faith to his own employer at the time and trying to help his colleagues over to the other bank, and there may be whole areas of life - horse racing, the Chairman suggested football - where you are going to get types of conduct that while somebody might regard them as improper would not necessarily be ones that we should see in a criminal court, Mr Raphael. Certainly you and I will not have seen those things before and perhaps we would benefit from having them.

Mr Raphael: I can see that. May I say with the greatest of respect that one could analyse this piece of draft legislation and many others on the basis that it does not fit every particular kind of model of conduct or delinquency. The thing is that particular delinquency, as we know, is visited very adequately by the law of inducing a breach of contract.

Q350 Mr Cox: That is a conspiracy. The only criminal offence is a conspiracy.

Mr Raphael: No, you may sue people for conspiring civilly, and they often are.

Q351 Mr Cox: Yes.

Mr Raphael: My only religious faith is my belief in the integrity of our prosecution system and I do not believe that people will be prosecuted where the proper remedy is to leave it for the parties to take a remedy in the civil courts for a tortious behaviour.

Q352 Lord Thomas of Gresford: Can I take you to clause 4, the bribery of foreign public officials. Is this something that you welcome? Does it comply with the international obligations under the OECD Convention and so on? Do you think that there are difficulties with it? For example, we seem to have a different definition of what a bribe is in sub-clause (3) where the concept of what is or is not "legitimately due" enters in. That is further refined in sub-clause 4 which says that the particular advantage is legitimately due but "if, and only if, the law applicable to that person permits or requires them to accept it". What does the prosecution have to prove? Does the prosecution have to prove that the advantage is not legitimately due and does the prosecution then have to go into what the foreign law of the country is in order to prove that it is not legitimately due and so on? I would be grateful to have your observations on that.

Mr Cole: Certainly in terms of the question of the legal test that should be applied my sense is that you should adopt a written law test. I do not see how else you can do it. To bring certainty to both the courts and, frankly, for the clients is the way in which it is approached under the FCPA. It talks about written laws and regulations. To me, if you start to go beyond that then you are opening up a Pandora's Box in terms of what is the law and you will get many, many experts coming through the door telling you what the custom is and, therefore, what is the law and you will never get to the end of that. My sense is that it should be a written law test. There is a question at the end of whether it should be a reasonable belief defence. I am open-minded on that point because if you have a written law test then all that a defendant has to fight about is whether he has been reasonable in his approach. You try to find out what the law is, so you get advice from a local lawyer and say, "What is the law here?" and if you are advised by that law firm in an overseas jurisdiction, "This is the law" and they have actually got it wrong but you have placed reasonable belief in that, maybe it should have a let-out. If you take the written law approach the boundaries for that defence are fairly limited and, therefore, on balance I would leave it in.

Ms Delahunty: I am concerned about sub-clause (4) and how it is to be defined. Reading Professor Horder's evidence, in his mind it seemed to be confined to payments to charity, to build an orphanage or a school or something like that. I wonder if this Committee and those involved in the drafting of the Bill need to know more about the FCPA and how that does work with the written law exemption and what does it apply to and what has been accepted within that scheme. When I look at this law I keep going back to the fact that we are trying to put in a new law, first of all because we need a new law but, secondly, to comply with our international obligations and perhaps to comply with what the US would like to see of us as well as the rest of the world. We need to see what is happening there because just to have this in to apply to countries where you can have a contract if you build an orphanage, I am not sure how that really works and I am not sure how this is going to work in a trial and how it is going to be explained. I find it quite worrying actually, quite confusing.

Chairman: The next question is a long question, and you have got it in front of you. I think this is the most interesting question of all. Can you bribe and get away with it? This is question 13: the foreign officials offence turns on whether an advantage was "legitimately due" in accordance with the foreign law that applies to the official.

Q353 Lord Thomas of Gresford: I trespassed on that earlier.

Ms Delahunty: We were discussing that earlier with all due respect, Chairman.

Mr Raphael: Can I just say one thing about this. Every day of the week corporations take advice on tax from tax lawyers and sometimes the tax advice is correct and sometimes it turns out to be incorrect and is struck down by the courts. We do not believe that should be a defence, it is a matter of judicial discretion and so in the first instance must be a matter of prosecutorial discretion. If we leave a reasonable belief in a clause as such it seems to add nothing because a responsible corporation doing business overseas will always if it is in any doubt, and there will be very few occasions when it can be left in any doubt as to whether what is being asked for is a bribe, will seek local advice. Where they have sought local advice and the instructions have been good, the advice has been unambiguous and they have followed the advice to the letter, it is inconceivable that they will be prosecuted. What concerns me, and I know time is running on and if you want us to deal with it by way of written submission so be it, is something else that was raised in your first session with Professor Horder and that is the problem of local partners, where you are forced to have a local partner who is or is not related to the head of state and you are dealing with a public procurement contract. To a large extent that bedevilled the issue in British Aerospace, if you remember, where it was said to be one of the problems in bringing that case forward. What do you do when it is legitimate to the extent that it is said you have to deal in this way and no other way otherwise you cannot deal. The problem is not just purely one of ethics, but once this Bill becomes law, if it does, it is a question of whether you are going to openly commit something that will attract criminal prosecution and conviction and debarment in this country. It is a very tricky problem which I think needs to be considered and I do not know whether it is adequately addressed in this particular piece of legislation.

Q354 Lord Lyell of Markyate: It may be adequately addressed. I have been trying to think about that in the context of what we know, which is limited, about the British Aerospace case. We know that Lord Goldsmith told the House of Lords that he was not satisfied that the case would necessarily succeed anyway, leaving aside any representations. I surmise that is partly or perhaps wholly because the system in a country which is run in a very, very different way from our own puts the question of procurement into the hands of some senior member of the royal family or somebody chosen by them and that is the way that business is done. To say that is not permitted within the context of this Act would be difficult, so I think it would be permitted. It may be that if that is the only way that business is done there, that is what Parliament would wish to achieve. The reason I am saying this really is to get your comment to try and focus on the right issue in law in relation to the Bill as currently drafted. On the whole do you agree with my assessment of what "permitted" means? I will just add one sentence. In English law if something is not forbidden then under the common law it is permitted, there is no law against it, no criminality. In a number of continental systems if something is not expressly permitted by the law then it is forbidden. I think this leads to some of the OECD problems and I would be grateful if you had any comment on that aspect as well.

Mr Raphael: Probably not at this time of day.

Chairman: You will write to us.

Q355 Lord Lyell of Markyate: On the "permitted" point, do you agree with me?

Mr Raphael: Yes, but we will have to look because obviously clause 4, as it were, is predicated on what went before by way of a definition in clause 1 and so on, so we have to see if you are dealing with the local partner, somebody prescribed to you by the head of state who says "You must deal with this local partner" and his commission will be paid, as was said in another session, into a Swiss bank account or whatever. You have to look carefully as to see whether that is offensive under the prescriptive regime of clause 1 because if it is then you are at the mercy of the prosecution authorities here as to whether or not they choose to prosecute you because then it becomes a political decision which I do not believe a prosecution should ever be, it should be capable of being predicted by reference to a code for prosecutors and it should be reasonably ascertainable in advance. If you are a business you should not be at the mercy of a whim of some very difficult to predict exercise of prosecutorial discretion, so I would agree with you. You have to look carefully at this. I would like to have some more time to see whether looking at clause 1, coupling it with clause 4, you are trapped in that situation and whether that means there are large parts of the world now where you simply cannot do business at all and if you choose to do business there now you would be prevented from doing business after passing this Act.

Ms Delahunty: Again, you are hearing separately from the CBI and other trade bodies and there is the whole question of competitive disadvantage. Just looking at this, I agree with what you say about "permits" but, of course, as this is a law which will affect our conduct around the world there has to be some certainty, so I go back to Jeremy and the need for a reference to the written law. I do not think that will be perfect because the written law of some of these countries may not be terribly clear in itself, but that is what is done under the FCPA and maybe that is the best it can be.

Mr Cole: Call me old-fashioned but I go back to the old concept of principal agent and as I understand in the Saudi situation the idea is you bribe an agent and then that agent can no longer be impartial in his or her advice to his principal, but here it sounds as if the principal is fully aware, indeed is receiving.

Q356 Lord Thomas of Gresford: The principal is getting a cut. That was the problem.

Mr Cole: I am afraid that is where I have problems. This is the old fundamental of what bribing meant which was persuading an agent to act against the interests of his principal and it seems to me you have not got that situation if I understand the Saudi situation correctly.

Mr Raphael: In British Aerospace, and I do not want to dwell on that, it was said that the payments that were considered to be delinquent were made, or would have been made, with the blessing of the head of state. That seemed to be the mischief which Lord Goldsmith found very difficult to deal with. I think that is what my Lord, Lord Lyell, is referring to.

Lord Lyell of Markyate: I think there are very real questions here because it is quite possible for a head of state to say you must do business in a particular way but there is still to be a bribe given within those parameters. That could happen. I am not saying it did happen. Equally, you could have what would be regarded as 18th century, but certainly not 21st century, Western European conduct, or certainly not British conduct, which was a level playing field but gave a great advantage to what seemed to be a very senior private citizen. It is a confused situation.

Q357 Lord Mayhew of Twysden: If we are going to have clarity, which is one of the principal objectives of this Bill, it is very hard to see, is it not, how a requirement for written law is not absolutely critical because you may very well have a situation in which corruption and bribery is part of the system and the law of the country concerned is silent on it. How do you overcome that point if you are the prosecutor, the point being, "Well, the law is silent. We have orders that this is the common practice in law"? How do you overcome the defence point that it is permitted? It will not deal with everything but to have an express provision in the law does seem to me to be a necessity.

Mr Raphael: The problem is this: you get the situation which was described by Professor Sutherland and that is how do you judge legitimacy. Are you judging legitimacy according to the culture of the country where the bribe has been or is being paid or is it according to our culture here? If it is going to be solely judged by what is permissible in the country where the bribe is paid it is not prosecutable if there is no written law, but if we are going to judge it by our standards then it is prosecutable. The analogy is not too farfetched because in the law of money laundering we have now accepted the idea of single criminality, so even if a predicate offence of the conduct which we say produced criminal property may have been lawful in the place where it occurred, if we say it would have been a criminal offence here, an acquisitive crime, then we say it is a predicate offence. We have moved away from the old-fashioned idea of double criminality and if we have moved away from the idea of double criminality maybe we should move away from the idea that things have to be doubly unethical, as it were, or doubly illegal. I have not put it very elegantly. It is a possibility.

Ms Delahunty: But was that in the mind of the author?

Mr Raphael: I have no idea.

Ms Delahunty: I am not sure if it was. I think the law applicable to F is meant to be the foreign law. That is how I read it.

Chairman: You are not going to solve it now. I hope you will solve it by the time it gets to the full House of Commons and House of Lords.

Q358 Lord Williamson of Horton: I think we are going on now to clause 5. Mr Raphael mentioned that he wanted to comment on that anyway. This is the corporate offence clause and it is quite tricky, I think. I wonder if I could just raise three points on it. First of all, in your view would it be desirable to widen the offence, some people have said to us they thought it is, which makes companies criminally liable for bribes paid on their behalf except where due diligence is established or adequate procedures are in place? The second point I want to raise is whether you think guidance is needed on some of the points in clause 5, for example on adequate procedures? I think you did mention that earlier. Thirdly, do you think that we are going to run into a problem over syndicates and joint ventures? There are an awful lot of joint ventures and the extent to which they are under the control of one company is quite tricky.

Mr Cole: Maybe I can deal with your last question first and go in reverse order. My sense is that if you are aware a bribe is being paid by a person performing services on behalf of that corporate it is unclear as to what the scope would be. I suggest a two-fold test. One is a substantive control test or a test based on a company acquiescing in the bribery that it has knowledge to. Rather than trying to do it by labels, you do it by those two measurements. If it is the case that you are in a JV and you have to have control over what that JV does then that substantially changes how these JVs are going to be structured, and that is not the real world. If there is a substantive control test as a result of what you have constructed with a JV and you do have control over the JV partner, fine, or if you acquiesce in what they are doing you should be responsible. To me those are the two tests you should apply.

Ms Delahunty: What I want to add is my concern previously raised about the adequate procedures defence. Professor Horder said it is essential to develop guidance, but my concern is how with such a wide constituency who are going to be dealing with risk management you are going to be able to have some sort of uniform guidance to make this work. I am also a little concerned, if I might say, by what you were talking about with our predecessors, Lord Thomas, this question of whether the defence then has to raise the issue because that begins to say to me reversing the burden of proof, with all due respect. I am a little bit concerned about that.

Q359 Lord Thomas of Gresford: There are two ways: either the evidential burden which would require the prosecution to disprove or the probative burden which would require the defendant to prove on the balance of probability. It seems to me the simplest thing is to say criminal vicarious liability of an employee of yours, or someone from a subsidiary of yours, will be imposed unless you can show, because you have access to your own files and documents and so on, that you have adequate procedures or have acted with due diligence. It seems to me the only way you can deal with it. What would a company prefer, that the police á la Damian Green move into the company and start searching through their files to find out if they can prove that they have not got adequate procedures or for the company to come forward with its own documentation to show that they have? I would have thought that they would prefer the latter course.

Ms Delahunty: I think for me it is just basic principles that in a criminal prosecution the prosecution should prove the case. I feel that if we are going to reverse the burden we have to be very sure that it is the right thing to do and dealing with a balance of probability test in a criminal prosecution causes me concern. We have to be absolutely sure that is the right thing. On your second point about would not the company prefer to raise this themselves, Section 2 Notices from the SFO at the moment ask for information in a very civilised way and companies are very happy to hand that over, and that goes on in many cases that I am dealing with at the moment. I am not sure just because of administrative issues we should think about reversing the burden of proof.

Lord Thomas of Gresford: You then have to have a very specialist police force that knew what they were looking for in terms of procedures and so on. They would have to be looking for specific things within the broad documentation of a company, whereas the company themselves would know what they have got in place and could produce it in court. Reversing the burden of proof happens all the time in all sorts of offences, that is no strange concept at all.

Q360 Lord Goodhart: Would it be an improvement if they widened the liability under clause 5 but convert it from being a criminal offence into something that gave rise to a civil penalty? There are precedents for that, are there not? For example, until a few years ago that was true of price fixing which gave rise to a civil rather than criminal offence.

Mr Cole: It still is the case. I think that is right. I think the corporates would welcome that because clearly they have huge concerns about their exposure to criminal responsibility, not only in terms of their reputation but, as I pointed out before on public procurement, it could be a bad company-type situation. If 50 per cent of their business comes from public procurement and that is stopped overnight, that company will collapse. Those are high stakes that you are playing with here. You are pre-empting the Law Commission's consultation on criminal liability where you draw the line in the sand, which is what we are talking about here, in terms of whether you have a vicarious liability offence with the adequate systems defence or whether you include some element of negligence in there. It is almost circular and gets confusing at that point. My sense is a civil penalty at this stage might be the appropriate answer.

Q361 Lord Lyell of Markyate: Could we just have a very quick explanation for my benefit. What is the law that says you are totally debarred from all procurement and ought that law to be changed?

Mr Raphael: It is a Statutory Instrument 2006 which implements an EU Directive.

Q362 Lord Lyell of Markyate: It is an EU law.

Mr Raphael: As far as the EU is concerned each of the Member States of the EU has domestically implemented an EU Directive. We implemented it by secondary legislation in 2006. That says if there is to be debarment, debarment may be mandatory, it may be discretionary, and in the case of corruption it is expressed to be mandatory.

Q363 Mr Cox: But this is not a conviction for corruption, this is for failing to prevent corruption. That is rather different, is it not?

Mr Raphael: It is meant to deter but it is there.

Q364 Mr Cox: The conviction under clause 5 ---

Mr Raphael: A corruption prosecution will result in debarment. Do forgive me, if I may be permitted to go back for a moment to Lord Goodhart's question and then come back to yours, if I am not being discourteous. There are lots of central problems which Parliament has to struggle with. The first thing is that white collar crime must not be devalued as opposed to other kinds of crime in the eyes of society. It must not be looked on as a soft option. As far as anti-competition is concerned and price fixing the European Union does not criminalise it and we did not criminalise it, but we did in the Enterprise Act and are now bringing prosecutions for it, albeit at the moment we are being rather soft about it. It is still a criminal offence here. The Americans were not going to criminalise corruption post-Lockheed in 1976 until they discovered that American companies were bribing their way into business around the world. They discovered that because more than 400 companies applied for immunity and they were so horrified they immediately decided that the FCPA should be a criminal statute, and so it has remained. We are considering a criminal statute which we are bound to introduce, particularly about foreign bribery, because we have a Treaty obligation to do it. Whatever else we do, we have to criminalise satisfactorily under our Treaty obligations the bribery of foreign public officials. It is not an option for us to have some regulatory or administrative penalty alone. That may stand alone and it may be quite separate. For the moment we have to consider how we are going to comply. There seem to me to be three options which have occurred to this Committee and the Law Commission. One is we can have this quite new offence of negligence or we can have an absolute defence of strict liability with a due diligence defence - it does not matter on who the burden falls for the moment - or we can have a look-alike FCPA which is with vicarious liability regardless of the status of the employee who pays the bribe. That is how the FCPA is constructed. It does not matter whether the doorman pays the bribe, it does not have to be the directed mind, which has bedevilled all the lawyers in this room and criminal law for decades, and it is very difficult to secure convictions because you cannot find the directed mind any more than you will be able to find a responsible officer in clause 5. If I may be impertinent enough to say that of the three options I would personally favour the idea of having vicarious liability with the defence of due diligence and say, "We've done everything we can. This chap went on a frolic of his own in Siam or wherever and he went around bribing people, but really we did everything we could to prevent it". In those circumstances I have every faith that no-one would be prosecuted for it. I am not a great believer in absolute offences. As regards clause 5, I think it is very unhappily worded, I do not know what it means. If you look at the impact statement which Jeremy Cole has already referred to it does not appear that whoever drafted the impact statement feels it is going to have much of an impact because there are going to be so few additional prosecutions, so one wonders why it is there at all other than for some unworkable cosmetic purpose which is far from desirable. I am sorry, that was a very long answer.

Q365 Mr Cox: Could you answer the question, Mr Raphael, about whether it should be a civil penalty or not?

Mr Raphael: It is very difficult to introduce a civil penalty in this regime which is going to be across the whole of industry and commerce because we do not have the legislative machinery, the infrastructure, to control the whole of our industry. The Bill deals with public law and private law, who is going to do this? Is it going to be the Office of Fair Trading? Maybe we should ask them to deal with it, if they could deal with it, and we could have a separate administrative penalty. It cannot stand in the place of a criminal penalty. It may be something extra which will encourage people to have good codes of practice. Yes, it will probably fill the coffers of lawyers who are asked to draft them and it may well be that is the case, but it cannot stand in the place of a criminal penalty, there still has to be a satisfactory way of punishing delinquent corporations because that is what we are obliged to do under the OECD.

Chairman: There are four more questions and I am proposing that on questions 16 and 17 you could post us a note. There are two further questions, if we could have swift questions and, if possible, swift answers. Lord Mayhew and then Lord Lyell to finish.

Lord Mayhew of Twysden: I think we have probably covered my question.

Q366 Lord Lyell of Markyate: Mine is to ascertain whether the draft Bill does enough to reform, and I hasten to say I do not like those words at all, the Attorney General's powers of consent and direction. Do you have any views about the Attorney General's powers and consent and direction?

Ms Delahunty: I have no problem with what is there, that the DPP and Crown Prosecution Service will deal with it.

Mr Raphael: Subject only to constitutional reform. I have read the evidence and this Bill has more chance of being passed than the Constitutional Reform Bill. It is a race between two tortoises maybe, but anyway.

Q367 Lord Lyell of Markyate: I will make it quite clear thatI have an absolutely immense constitutional problem with this suggestion, but we will leave it at that.

Mr Raphael: All I would say, and I am speaking to somebody who knows more about it than most people, is the problem is at the end of the day the Constitutional Reform Bill envisages that there will be this residual power in the Attorney where national safety is engaged and, secondly, there will be difficult issues where maybe the Director of the Serious Fraud Office or the Director of Public Prosecutions - there will not be a Director of Revenue and Customs Prosecutions Office because this is to be merged - would wish to refer the matter up. As things stand at the moment under this proposed legislation, under the Constitutional Reform Act, there will be no-one to refer it to. My other objection is I do not like the idea that you could have separate directors who have this discretion because how can you guarantee that they would exercise their discretion in a uniform manner. For example, you may have the discretion exercised by the Director of the Serious Fraud Office in one way and exercised by the DPP in another. I appreciate that the SFO has been given the job of prosecuting serious overseas bribery but the SFO will never be in a position to prosecute everything, so there may be a mismatch.

Lord Lyell of Markyate: The nub of the matter is parliamentary accountability, but that will be for another debate.

Chairman: Thank you. Some of us have to go and face our constituents and the rest do not. I wish I was in the second category. Thank you, it has been most interesting.