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House of Lords

Friday, 16 March 2007.

The House met at eleven o’clock: the LORD SPEAKER on the Woolsack.

Prayers—Read by the Lord Bishop of Rochester.

Corruption Bill [HL]

Lord Chidgey: My Lords, I beg to move that this Bill be now read a second time.

Perhaps I may draw noble Lords’ attention to the summary of the statement issued this week by the OECD Working Group on Bribery on its phase 2 report on the United Kingdom. Notwithstanding its current concerns about the dropping of the BAE Al Yamamah investigation, it outlined continuing shortcomings in the United Kingdom’s anti-corruption legislation. It urged the UK to remedy those shortcomings as quickly as possible and it has decided to conduct a further examination of the UK’s unsatisfactory efforts to fight bribery.

The OECD’s phase 1 report found the UK’s anti-bribery legislation wanting; it still found it wanting in the 2005 phase 2 report; and the legislation is found wanting again in March 2007. Recommendations that the UK should enact modern foreign bribery legislation at the earliest possible date remain unimplemented. So we are to be examined again, a sort of “phase 2B” report. That is a pretty poor record for a country that is supposed to be leading the way in promoting ethical foreign policy and business.

In introducing this Second Reading debate, I want first to place on record my gratitude for the wide-ranging support and guidance that I have received from Members of both Houses, from all parties and from Transparency International (UK), which has enabled me to bring the Bill before your Lordships’ House. I thank the many noble Lords for their attendance here today—I trust, in support of the Bill, or is it to see whether there is blood sport in the offing?

The Bill is unusual in that it began life in another place as a 10-minute rule Bill. The initiative sprang from the work of the Africa All-Party Parliamentary Group, of which I am vice-chairman. The group, under the chairmanship of Hugh Bayley MP, produced and published its report The Other Side of the Coin: the UK and Corruption in Africa, which urged the Government to enforce existing laws against bribery and corruption. It called for a new anti-corruption Bill to be brought before Parliament before the end of 2006 to address concerns raised by the joint parliamentary committee and the OECD phase 2 review about the 2003 draft Bill.

In late May 2006, Hugh Bayley MP, backed by other senior Members across the parties, including the right honourable John Denham MP, the right honourable Malcolm Bruce MP and John Bercow MP, introduced a draft Corruption Bill under the 10-minute rule in the other place. The Bill, drafted with the support of the Joseph Rowntree Charitable

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Trust and TI(UK) was well received, both as a serious piece of legislative drafting and as a contribution to the wider debate on tackling corruption.

In June 2006, Downing Street endorsed the Africa All-Party Parliamentary Group’s conclusions that the Government should take a lead in tackling international corruption and agreed to implement most of the group’s recommendations. The draft Corruption Bill, having been read under the 10-minute rule, fell away and ceased to feature in the parliamentary programme. To rectify this and to avoid losing important draft legislation, I have brought it forward, updated and amended as a Private Member’s Bill, to your Lordships’ House for further consideration.

Anyone who has been involved with the developing world cannot have failed to see the devastating effect of international and domestic corruption on the lives of poor people in poor countries. Poverty-line incomes are eroded by corrupt demands for payment for basic services—services that the state intended should be provided free of charge. When officials and Ministers siphon off funds meant for the development of health, education or road building, everyone suffers.

The Prime Minister’s Commission for Africa found that,

It also found that,

I repeat, $400 billion per year—more than the total annual income of the population of Africa.

But the impact of corruption goes far beyond the headline figures. It leads to loss of investment, discourages private sector development and slows economic growth. It also, of course, raises the need for effective scrutiny and regulation of international and commercial centres to tackle corruption’s supply side. The international business community has itself taken the initiative, where it can, in addressing corruption at home or abroad.

For example, the British Consultants and Construction Bureau, the Institution of Civil Engineers, of which I have the honour to be a fellow, the Institute of Mechanical Engineers, with which I first graduated, the Institution of Structural Engineers and Transparency International are working together as part of the Anti-Corruption Forum to promote industry-led action to eliminate corruption. Established in October 2004, the forum’s members represent over 1,000 companies with interests in the infrastructure, construction and engineering sectors. Through its developing countries working group, the forum is working to help to create anti-corruption forums in developing countries. It is co-operating in exchanging ideas and information and developing best practice. The forum’s multilateral bank working group is examining how improved financial procedures can help to reduce corruption and how greater assistance can be provided to contractors and consulting engineers faced with extortion demands or having difficulty in receiving permits, certificates and payments.

The United Kingdom-based international commercial banks are addressing areas where they see threats from corruption, the risk of their employees being involved

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and the risks of the proceeds of corruption passing through their systems. As would be expected, there is automatic zero tolerance towards employees or businesses with involvement in any form of corrupt practice, as is consistent with UK law and corporate values. However, there is also an acceptance of the challenges of making sure, across a wide variety of cultures, that employees feel sufficiently empowered to speak up if they see something that they are concerned about.

Addressing the risks of the proceeds of corruption passing through the systems of the banking world can be even more challenging. Although robust anti-money-laundering controls are in place, together with automated screening of international payments, it can be like looking for a needle in a haystack. International banks are for ever urging law enforcement and intelligence agencies to share suspect names with them before they are added to the public sanctions lists, by which time the birds may well have flown.

That brings me to the concept of preventing corruption in the defence sector and the recognition of the impact of legislation in this sector, although in the UK it could be argued that we still await the arrival of legislation that would have a significant impact. During the Cold War, “corruption” and “defence sector” were almost synonyms. Many take the view that there was little or no attempt to secure integrity in the sector, as much by exporting Governments as by defence companies and state purchasing agencies. Real and significant change did not begin to occur until after the fall of the Berlin Wall. But past practice left a long legacy, with the result that many major investigations are still being progressed around the world into deals done in the 1980s and 1990s.

The tipping point for European companies was the passage of the OECD convention in 1997. This has seen many companies develop codes of conduct and anti-corruption programmes. The second major impact has been anti-corruption legislation in the USA. Passed as long ago as 1977, it has long had an impact on constraining corrupt behaviour by US firms. More recently, it is being used, with increasing frequency, to pursue foreign firms.

In this context, E Anthony Wayne, when he was US Assistant Secretary of State, reportedly commented that,

He complained of,

and added that,

With the US being the UK’s—and thus BAE Systems’—most important defence export market, the perceived intransigence by UK authorities, and the company, over the Al Yamamah Saudi saga is damaging our defence industry overall. It is a compelling reason why the new legislation is so necessary, and why further delay is so unacceptable.

In spite of a lack of legislative guidance and support, the defence industry has shown itself to be open to collaboration in improving anti-corruption standards.

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Through its own efforts, transnational agreements have been entered into to share information on business conduct codes. A common code of anti-corruption practice to which defence companies will adhere has been successfully established across Europe.

In the international development export arena, views are also beginning to change. The chief executive of the British Consultants and Construction Bureau was quoted in New Civil Engineer magazine of 7 September 2006 as saying that,

What is clear is that the UK's international business, industry and banking community have, over the past decade or so, taken corruption seriously, and worked together to tackle its impact. British companies can no longer claim to be at a disadvantage compared to foreign competitors by rejecting corrupt practices. All OECD countries and all UN states are expected to legislate against corruption to similar standards. Demonstrably, when it comes to legislation, the UK has fallen behind. It is a major embarrassment to the UK, to the Government and to ourselves that the OECD review of compliance with its convention noted that, while the USA and France, among others, had prosecuted companies in their countries for transnational bribery, the UK to date—March 2007—had not.

There is little dispute that the UK's anti-corruption legislation is out of date, obscure and inadequately enforced. It rests on a confusing mix of common law and statute, principally the Prevention of Corruption Acts 1889, 1906 and 1916—before the first aeroplane took flight, I think.

Successive Home Secretaries have promised new anti-corruption legislation but nothing emerged until after the Law Commission released a consultation paper in January 1997 and published proposals in March 1998. It was not until 2003 that the draft legislation proposed by the commission was adapted in a draft Bill and referred for scrutiny to an all-party joint parliamentary committee. The committee was very critical of the fundamental approach to defining bribery, believing that no one would understand it—not the police, not prosecutors, not jurors, not the public, and, in particular, not businesses or the public sector in the UK and overseas. In due course, the Government have accepted the importance of trying to find an agreed way forward and, in December 2005, commenced a consultation process. That was some eight years after the Law Commission first published its proposals.

This Corruption Bill has been developed as an adjunct response to the consultation process, with the aim of reforming the law of bribery in a way that is readily understood by all parties. It would enable the UK to become fully compliant with its international obligations. It has been developed with a genuine desire to introduce flagship legislation reflecting: the growing importance of the City of London as a conduit for world trade and investment; the UK's role in international bodies engaged in combating corruption; the UK's leading role in combating organised crime and international terrorism; and the importance of

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maintaining high standards of business integrity to maintain confidence in the UK's equities and securities markets. The Bill has been developed to reflect the UK's role in supporting developing countries through the provision of international development aid, the promotion of transparent global markets, the support for democratic government and the equitable use of world resources.

The content and scope of the Corruption Bill follow the Government’s 2003 Bill but it adopts a very different approach to specifying the principal offences. The Bill focuses on the real mischief—improper conduct that is intended to result from a bribe—in Clause 1. There are separate offences to cover bribery within normal agency relationships in Clause 2. There is a further offence of bribery in the context of foreign officials, which places beyond doubt the UK's compliance with both the OECD and UN conventions, in Clause 3. Clause 4 covers the offence of foreign bid-rigging, which is identified by the joint parliamentary committee and applies only in the UK, but was not recognised in the Government’s Bill. A further new offence to protect sporting events from match or performance result-fixing is covered in Clause 5.

There follows a series of clauses dealing with reporting corruption in the public sector, and then Clauses 11 and 12 deal with the supervision of foreign subsidiaries. I am aware that there are concerns that making UK companies liable for the acts of foreign subsidiaries would have significant implications for company law, but that seriously misunderstands the clauses in the Bill. They do not make companies liable for the acts of foreign subsidiaries; they require a UK company to,

such subsidiaries do not bribe. Any prudent UK company will be taking these steps in its own interests in protection of its reputation and will not be troubled by such provisions.

The definition of bribery has been at the heart of the Government's law reform throughout. Transparency International took the view that, if the law was to be reformed for the first time for 100 years, it was sensible to give full consideration to legislating over a wide range of matters constituting corruption, as it happens in the real world. This is partly to respond more effectively to our international obligations by treaty but it is also a move to tackle matters of concern to business and international development. By way of illustration, this Bill includes additional matters such as: the specific provision for foreign bribery; foreign bid-rigging; corruption in sport; a duty to report instances of corruption; the responsibility of a UK company for a bribe by an overseas subsidiary; failure by a UK company to ensure that satisfactory anti-corruption measures are in place overseas in associated or joint venture companies; a clear empowerment of the serious fraud squad; and the removal of the special consent of the Attorney-General for the prosecution of corruption offences.

Those working in anti-corruption internationally recognise the need to counter modern conditions with laws that are in tune with current behaviour and practice. The international conventions in the Council

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of Europe and the UN, for example, address a whole range of offences. There is no logic in imagining that a single statutory offence should apply equally well in all circumstances and in all places. In that regard, I urge the Government to reconsider their declared position of, “We do not believe we should do this”, and to review urgently the Bill’s additional matters.

As the Home Office’s response paper to the consultation process recognised, many experienced politicians of serious intent have contributed to the development and preparation of the Bill. As the Home Office also acknowledges,

as a serious organisation with the combat of corruption as its sole focus. TI promotes the Bill to move the UK towards a comprehensive anti-corruption code. It has no interest in developing legislation but it wishes to promote that aim to this Parliament and this House.

The Bill’s proposals are the product of long and careful consideration. The resources required to assemble and present them in the accepted parliamentary legislative form could not have been found without the support of the Joseph Rowntree Charitable Trust.

By committing to a Bill that not only defines bribery intelligibly, in a manner that business and agencies will readily understand, but also has key components of modern anti-corruption code, the Government would take a positive step towards countering the concerns that the UK is not serious about tackling corruption. That, sadly, is the perception in view of the extraordinary and continuing delay in modernising our laws, the adverse reports received from the OECD evaluations and, most recently, the perceived premature decision to discontinue the investigation into BAE Systems’ dealings with Saudi Arabia. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Chidgey.)

11.24 am

Lord Berkeley: My Lords, I congratulate the noble Lord, Lord Chidgey, on presenting this Bill. It is a very important Bill, but sad that it is necessary. To some extent, that is because of the apparent failure of the Government to comply with the commitments that they gave to the OECD. I also congratulate my old friend Jeremy Carver and Transparency International on all their hard work in providing us with information and for working so hard against corruption.

I recall that in 1997 the Labour Government had an ethical foreign policy, which, sadly from my point of view, did not last all that long, presumably because the arms manufacturers and the oil lobby got the best of my colleagues. So, to some extent, we are back in the good old days of corruption—perhaps more so than was the case 20 years ago.

I am a civil engineer. I am nothing like as eminent as the noble Lord, Lord Chidgey, but I spent a few decades in the business. When tendering for projects overseas, a percentage was always added—the noble Lord quoted 50 per cent; I never got that high—with the name of a suitable agent in whichever country one was in. It was usually a man with a Swiss bank

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account number. There was also export credit support. So, effectively, several major member states and other countries, including Japan, were using taxpayers’ money in a fight to see who could make the biggest bribe in the country concerned. We all thought that was pretty stupid. I was remarkably unsuccessful in that regard, which was probably a good thing, but it indicated how bad the situation had become. If the Serious Fraud Office is allowed to complete any of its current investigations, we might see more of that.

It is fantastic, as the noble Lord, Lord Chidgey, said, that over the past 10 years the anti-corruption movement has increased its pressure and achieved a great deal. The OECD agreement mentioned by the noble Lord—it took place nine years ago if I have calculated it right—was a real landmark, even if we are running a bit behind in this country. But for the private sector and the construction industry, which I know in particular, to have agreed on anything was a great piece of work, because the bribery taking place in other countries was endemic and they probably thought they would not get any more contracts without it. So, for the construction industry, the mechanical engineers and everyone else mentioned by the noble Lord to have got together, made these statements and tried to turn the agreement into reality was a real achievement. It seems that there is growing acceptance in the sector that action must be taken by all the relevant parties, of which there are an awful lot. But there have to be incentives and penalties and, if everyone complies and works to the guidelines and rules, we will be on the brink of a major change.

This is one occasion when the private sector has led, and it is rather sad that our Government have not seen fit to do their necessary part in introducing proper anti-corruption legislation, as contained in the Bill. One could argue that there has been vacillation for the past nine years, and it really is time that this whole situation was dealt with.

A statement was made yesterday by the OECD working group, which, as the noble Lord said, has ordered a special review of the UK’s progress in enacting new foreign bribery law. A number of international lawyers and other people involved have commented on the investigation into systemic problems and everything concerning on-site visits. Let us hope that there is a good report at the end of it. However, they are saying that no one can recall such criticism being made of a major member of the OECD. I hope that the Government will take this seriously, work closely with the Law Commission and those involved, and accept the Bill.

When it was announced that, on the grounds of national interest, the Government had instructed the Serious Fraud Office to stop investigating the allegations that British Aerospace and the Saudi Arabian Government might have been up to something nasty, I thought that it was frankly quite incomprehensible. It demonstrated the sacrifice of an ethical policy in a move to support, for example, arms exports for oil.

In conclusion, I hope that my noble friend and the rest of the Government will welcome the Bill. It could mean that the Government’s legislation would then be

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fully compliant with their international obligations, and that never again is the excuse of national interest used in issuing such instructions to the SFO and others.

11.31 am

Lord Neill of Bladen: My Lords, I add to what the noble Lord, Lord Berkeley, said, in congratulating the noble Lord, Lord Chidgey, and Transparency International on their initiative. It is a matter for regret that it has been left to private initiative to move forward in this absolutely vital area. Anybody with any experience of international contracts and their performance around the world would have found, time and again, either direct bribes being reported or commission of a dubious character being demanded by intermediaries. I am afraid that it is a bad and corrupt world out there; it is getting better, but there is a long way to go.

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