167.Companies are creatures of statute. They are not corrupt, they do not have consciences, they do not show remorse. But they, and their shareholders, can benefit hugely from the corrupt conduct of their agents, their employees and their directors, sometimes at the highest levels. The problem of how they can be punished for the conduct of perhaps a tiny minority of those involved, without at the same time harming the great majority who have played no part in the corrupt activities, is one which has exercised lawmakers for many years. It is one which the Law Commission sought to resolve by making it an offence for a commercial organisation to fail to prevent bribery.
168.The Law Commission was not the first to formulate such an offence. Article 3(2) of the Second Protocol of the Convention on the protection of the European Communities’ financial interests, dated 19 June 1997, reads:
“Apart from the cases already provided for in paragraph 1, each Member State shall take the necessary measures to ensure that a legal person can be held liable where the lack of supervision or control by a person referred to in paragraph 1 has made possible the commission of a fraud or an act of active corruption or money laundering for the benefit of that legal person by a person under its authority.”
169.In its second consultation paper the Law Commission pointed out that this formed the basis for Article 18(2) of the Council of Europe Criminal Law Convention on Corruption, which copied it almost verbatim, as subsequently did Article 5(2) of the [EU] Council framework decision of 22 July 2003 on combating corruption in the private sector.The Law Commission described this as “a relatively specialised form of liability”, and explained that neither the Council of the European Union, in drawing up the Second Protocol, nor the Council of Europe in copying the provision into the Convention, had assumed that this would necessarily entail criminal sanctions; “administrative and civil law measures are possible as well”. The consultation paper then asked for views on whether there should be a new criminal offence of failing adequately to supervise, or whether a new civil or administrative provision would suffice.
170.The views of the few consultees who responded were inconclusive. The Law Commission considered further, in particular with officials of the OECD, whether a criminal offence would be desirable, and concluded: “we believe that the introduction of our recommended offence would banish any doubt that there might be over the adequacy of the existing law, respecting European Convention requirements regarding the combating of bribery committed or tolerated by companies.”Clause 7 of the draft Bill annexed to the Law Commission report accordingly created the offence of failure by commercial organisations to prevent bribery. The drafting of the clause was substantially amended for the draft Bill prepared for the Joint Committee in March 2009, and further amended (though less significantly) for the Bill introduced in the House of Lords on 19 November 2009. It reached the statute book without further amendment, and reads:
Failure of commercial organisations to prevent bribery
“(1) A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending—
(a) to obtain or retain business for C, or
(b) to obtain or retain an advantage in the conduct of business for C.”
171.The creation of an offence of failure by a commercial organisation to prevent bribery was an unprecedented way of enlisting the support of those most susceptible to being involved in the offence and most able to aid in its prevention. It is generally agreed to have been remarkably successful, and was described by Transparency International UK as “invaluable as a tool to incentivise improvements in corporate behaviour and for prosecutors to hold companies to account within a criminal law framework.” The Criminal Finances Act 2017 has followed this example with the offences of failure to prevent facilitation of UK and foreign tax evasion.
172.The Law Commission had never intended that the new offence should be one of strict liability, but the Consultation Paper only touched on how a defence might be framed. The Law Commission waited until its report to consider more fully what should constitute a defence. It gave as an example the due diligence defence in section 21(1) of the Food Safety Act 1990:
“In any proceedings for an offence under any of the preceding provisions of this Part … it shall … be a defence for the person charged to prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of the offence by himself or by a person under his control.”
173.The Law Commission concluded:
“A company should not be liable for a serious offence, such as failure to prevent bribery, on the basis of a single instance of carelessness, if it can show that it had robust management systems in place to prevent bribery taking place. Clause 7(6) of the draft Bill makes it a defence to show that there were such systems in place.”
174.Clause 7(6) of the draft Bill annexed to the Report read:
“Except as provided in subsection (7), it is a defence to a charge under this section to prove that C had in place adequate procedures designed to prevent persons performing services for or on behalf of C from committing offences under section 2 or 4.”
175.The wording of the provision in the draft Bill presented to Parliament in March 2009 for consideration by the Joint Committee was almost identical, but (like the remainder of section 7) this subsection was re-drafted for the Bill introduced in November 2009, and was not further amended during the passage of the Bill. Section 7(2) now provides:
“But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”
176.Under the Bribery Act there is no substantive requirement for commercial organisations to have anti-bribery procedures. It is not an offence to have no such procedures in place, but it is very much in a company’s interest to do so; if it does not have adequate procedures in place, it will have no defence when an associated person bribes another person on behalf of the company. Companies which might previously have been unconcerned at being involved with bribery (even if at one remove) which assisted their business, now have every incentive to put in place procedures to prevent this happening.
177.By contrast, as PwC pointed out,
“ … in some other jurisdictions a positive obligation has been imposed. France’s Sapin II law is perhaps the most closely scrutinised example of this from a UK perspective. This came into force on 1 June 2017 and establishes a strict positive obligation on French companies to ‘prevent corruption.’ Companies with over 500 employees or an annual turnover in excess of EUR 100m are expected to implement an appropriate internal ABC risk management framework, with the company and its directors held accountable by the newly created Agence Française Anticorruption (AFA). Ultimate sanctions for breach include fines for a legal person of up to EUR 1m and for individuals up to EUR 200,000 and the right for the authorities to publicise both the failure and fine.”
178.Section 9(1) of the Bribery Act provides: “The Secretary of State must publish guidance about procedures that relevant commercial organisations can put in place to prevent persons associated with them from bribing as mentioned in section 7(1)”. The Guidance published by the Ministry of Justice in March 2011 goes wider than this, giving the Government’s views on the offences created by sections 1, 2 and 6, on hospitality and facilitation payments, on what constitutes a “relevant commercial organisation” and what is an “associated person”.
179.The Guidance then sets out Six Principles which the Government considers should guide commercial organisations when putting in place procedures to prevent bribery.
Proportionate procedures: A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.
Top-level commitment: The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.
Risk Assessment: The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.
Due diligence: The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.
Communication (including training): The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.
Monitoring and review: The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.
180.Each of these Six Principles is explained in some detail, and they are followed by case studies explaining how the principles might apply in different hypothetical situations. Throughout the Guidance there is emphasis on proportionality: what is necessary for a large company will not necessarily be essential for a smaller company. What is needed by a company exporting to countries with poor corruption records will not necessarily be needed by companies doing little or no exporting. Iskander Fernandez, who spoke to us about the Skansen case which we discuss below, was emphatic that:
“you need to have a bespoke policy in place. You cannot have a generic policy that you simply pull off the internet and say, ‘This is it.’ … If that generic policy does not cover off specifics in your organisation, if a company were to be investigated that could be its downfall, simply because it was not sufficient for the business activity it was carrying out.”
181.We have mentioned that section 7 of the Bribery Act has been used as a model in the Criminal Finances Act 2017 for the offences of failure to prevent facilitation of UK tax evasion offences and failure to prevent facilitation of foreign tax evasion offences created by sections 45(1) and 46(1) of that Act respectively. Section 45(2) and section 46(3) provide:
“It is a defence for B [a relevant body] to prove that, when the [UK] [foreign] tax evasion facilitation offence was committed—
(a) B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or
(b) it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.”
Two significant differences appear. First, these defences refer to procedures “reasonable in all the circumstances” rather than the “adequate procedures” of section 7(2) of the Bribery Act. We discuss this in detail below. Secondly, section 7(2) does not have an equivalent to paragraph (b); the question whether there may be circumstances in which it is adequate to have no procedures at all in place for the prevention of bribery is left open.
182.Section 47 of the Criminal Finances Act 2017, like section 9 of the Bribery Act, requires the minister—here the Chancellor of the Exchequer—to publish guidance about procedures relevant bodies can put in place to prevent associated persons from committing tax evasion facilitation offences. When section 9 of the Bribery Bill was passing through Parliament, unsuccessful attempts were made to make the Guidance subject to Parliamentary approval. However section 47(4) of the 2017 Act provides that the Guidance prepared by HMRC “does not come into operation except in accordance with regulations made by the Chancellor by statutory instrument.”
183.The HMRC Guidance follows the same pattern as the Bribery Act Guidance, with the same Six Principles. Both sets of Guidance include useful commentaries with each of the Six Principles, and both supplement this with a number of case studies showing how the provisions of the relevant Act might apply in a number of different situations. The HMRC Guidance gives more detailed examples. Although it begins with the caveat that “Ultimately only the courts can determine whether a relevant body has reasonable prevention procedures in place to prevent the facilitation of tax evasion in the context of a particular case,” it is not afraid to state in terms that particular facts will or will not constitute offences, and to conclude (to give only one example), that
“Gladstone Bank may struggle to mount a reasonable prevention procedures defence, its procedures were arguably not reasonable because it had only implemented procedures for a small number of UK-based staff. It is no defence to claim that it should not be expected to put in place prevention procedures designed to prevent its associated persons from being complicit in fraud resulting in a tax loss outside of Switzerland.”
184.For companies, especially small companies, which are setting up anti-bribery procedures, and trying to decide whether they are “adequate”, these examples and conclusions are helpful. In the Bribery Act Guidance each case study states only in very general terms that the company might in the particular situation “consider any or a combination of the following” steps. We appreciate that it is difficult for the Guidance to state that any particular combination of steps would be adequate, but it would help to say that a failure to take at least specified listed steps would be likely to result in procedures being inadequate.
185.The HMRC Guidance also contains a number of passages aimed specifically at SMEs which have no equivalent in the Bribery Act Guidance, including:
“Burdensome procedures designed to perfectly address every conceivable risk, no matter how remote, are not required. Procedures need only be reasonable given the risks posed in the circumstances. It is expected that a relevant body will therefore first undertake an assessment of the risks that those who act on its behalf may criminally facilitate tax evasion …”
“To be ‘reasonable’, prevention procedures should be proportionate to the risks that the organisation faces … The size of the organisation will be an important factor, as will the nature and complexity of its business, but size will not be the only determining factor.”
186.Some of the case studies in the Bribery Act Guidance refer specifically to small companies, but the conclusions do not seem to us to take particular account of the fact that in the case of SMEs simpler procedures may still be adequate. In their written evidence Fieldfisher said:
“The guidance published by HMRC … sets out that in some circumstances it may be unreasonable to expect a business to put preventative procedures in place. This would be, for example, where the business’ risks are assessed to be extremely low and the costs of implementing procedures disproportionate. There is no such statement in the guidance to the [Bribery] Act, which effectively says no matter how low an organisation’s risk may be it still needs to put in place some form of procedures. We recommend that the guidance is amended to make it clear that having no procedures in place may be acceptable for some businesses.”
187.Some witnesses felt that the Guidance was sufficiently clear, and Eversheds Sutherland thought that “The Ministry of Justice should not invest scarce resources in amending or updating its Guidance on the Act.” But they were in a minority; many thought the Guidance should be reviewed and updated. Transparency International UK wrote:
“It would be helpful to provide a range of case studies that were relevant to various businesses, in particular for small to medium enterprises (SMEs) which typically operate their businesses with less formal and structured policies and procedures and often will be less well set up to manage bribery and corruption risk.”
188.We agree with these witnesses that the Bribery Act Guidance should be revised. In doing so, officials should bear in mind that larger companies will have their own advisers to help them decide what procedures are adequate; the Guidance should be directed primarily at SMEs. Consultation with organisations representing SMEs will be important, and a comparison with the HMRC Guidance will be helpful.
189.In addition to the statutory guidance, the Ministry of Justice issued before the entry into force of the Act what it called a “Quick Start Guide” to the Act which includes the following passage:
“Do I need complex procedures in place even if there is no risk? No. If there is very little risk of bribery being committed on behalf of your organisation then you may not feel the need for any procedures to prevent bribery.”
190.It seems to us that the views of the Ministry of Justice in this Guide must bear no less weight than those in the Guidance the department was required to provide by statute, since neither document required or received parliamentary approval. Nevertheless it would be convenient for readers of the statutory Guidance if, when it is amended, a statement to the same effect could be incorporated.
191.It is potentially confusing to have the two Guides in force simultaneously. Once the statutory Guidance has been amended, it would be appropriate to withdraw the Quick Start Guide.
192.We stress the importance for even the smallest companies of carrying out a properly documented risk assessment. Without this, they will not be in a position to decide whether they have a low, or no, risk of bribery, so that they do not need to put anti-bribery procedures in place. They will need to carry out a re-assessment if their business changes. Transparency International UK is among bodies providing useful advice on risk assessment.
193.The Ministry of Justice should, in consultation with representatives of the business community, and especially of SMEs, expand the section 9 Guidance to give more examples and to suggest procedures which, if adopted by SMEs, are likely to provide a good defence.
194.The Guidance should make clear that all businesses need to conduct a risk assessment, that all but the smallest are likely to need procedures tailored to their particular needs, and that staff will need to be trained to understand and follow those procedures.
196.As we have explained above, the drafts of the due diligence provision in the Bill annexed to the Law Commission’s second report, in the draft Bill presented to the Joint Committee in March 2009, and in the Bill introduced in November 2009, all include the words “adequate procedures”, and these words are now on the statute book. Among the dictionary synonyms for “adequate” are “acceptable”, “satisfactory” and, most significantly, “reasonable”.
197.From the discussion of the due diligence provision in paragraphs 6.105–6.125 of its second report, it is clear that the Law Commission did not intend by its use of the word “adequate” to deprive a company of a defence solely because a person associated with the company bribed another person in order to obtain business for the company. And this is followed by “two examples of carelessness leading to the commission of bribery that, in all probability, even an adequate preventative system could not reasonably be expected to have stopped in advance.”
198.The Joint Committee considered the wording, and noted that “there was near-unanimous agreement in evidence that the meaning of ‘adequate procedures’ in clause 5 will require amplification through guidance”, but nowhere was it suggested that the wording should be changed.
199.Although, as we have said, Clause 7(2) of the Bill as introduced on 20 November 2009 was unchanged throughout the passage of the Bill through both Houses up to Royal Assent on 8 April 2010, unsuccessful attempts were made to amend it during its passage through the House of Lords both in Grand Committee and on Report. On the latter occasion the amendment moved was to replace “adequate procedures” with “reasonable procedures in all the circumstances”. The argument on each occasion was that the wording in effect provided no defence, because the fact that bribery had taken place ex hypothesi proved that the procedures in place, however robust, were inadequate. A further unsuccessful attempt was made when the Bill was in Committee in the House of Commons.
200.We have set out above the wording of the analogous provisions in sections 45(2) and 46(3) of the Criminal Finances Act 2017 which refer to procedures “reasonable in all the circumstances” rather than the “adequate procedures” of section 7(2) of the Bribery Act. The earliest reference to “reasonable” procedures in the context of facilitating tax evasion comes in the consultation document Tackling offshore tax evasion: a new corporate criminal offence of failure to prevent the facilitation of evasion which states:
“The introduction of s.7 of the Bribery Act 2010 made it a criminal offence for a commercial organisation to fail to prevent bribery by a person associated with the commercial organisation. The s.7 model has been recognised as an effective response to corporate commercial bribery. It incentivises companies to put in place adequate procedures and promotes corporate good governance.
In the context of the facilitation of tax evasion, the Government believes that it is right for corporations to take reasonable steps to prevent its agents from facilitating tax evasion. In the same way that a professional who dishonestly assists a customer to evade tax is guilty of the tax offence in which he or she becomes complicit, the Government believes that the corporation which employs this professional and fails to take reasonable steps to prevent their offending should also face prosecution. Many of the corporations that will be affected by this new legal requirement will be familiar with the Bribery Act. We believe that the Bribery Act s.7 offence offers the best model for a new failure to prevent the facilitation of tax evasion offence, and it will help to ensure consistency and minimise the burdens on corporations.”
201.The officials involved in formulating the policy for the new offences were thus aware of the wording of section 7 of the Bribery Act but, presumably deliberately, chose different wording. There is nothing to suggest that they did so because they were seeking to achieve a different result; on the contrary, they seem to have chosen the wording they preferred believing that its meaning was the same and that it would achieve the same result. But the consequence is seen by many lawyers as confusing. Peters and Peters wrote:
“Parliament has introduced two pieces of criminal legislation based on the same model of corporate criminality … Both encourage compliance programmes designed to (a) address the risks faced by a business and (b) provide a defence in the event of breach. However, the standard against which each is judged is different. … The rationale is not immediately apparent, and potentially confusing.”
202.We are not aware of any judicial interpretation of either “adequate procedures” or “procedures … reasonable in all the circumstances”. In his judgments in two of the DPA cases Sir Brian Leveson, the President of the Queen’s Bench Division, referred to “adequate procedures”, but in neither case did he have to interpret the expression, since on their own admission both companies’ procedures were inadequate by any standard. However when Sir Brian was giving oral evidence we suggested to him that “‘adequate’ would be construed by a judge as meaning, in effect, “reasonable in all the circumstances”. Sir Brian said that he would be very happy to accept this articulation if it came to be argued in court, though the point had never been argued in front of him.
203.Ultimately it is only the courts which can decide whether in this context there is a difference in meaning between “adequate” and “reasonable in all the circumstances”, and if so what that difference is. The wording was considered by the jury in the Skansen case. Iskander Fernandez told us that “Under the heading, ‘What Skansen must prove and to what standard’, the judge said to the jury: ‘That is for you to decide, and the words ‘adequate’ and ‘procedures’ have their everyday meaning. If you are sure of what the prosecution must prove, it is for Skansen to show on a balance of probabilities—i.e. that it is more likely than not—that it had adequate procedures in place designed to prevent persons associated with the company from engaging with bribery.’ ” The jury found the company guilty, from which it is clear that they did not consider the company to have implemented procedures which were adequate. But there is no way of knowing whether they might have come to a different conclusion if they had had to decide whether the procedures Skansen had in place were “reasonable in all the circumstances”.
204.This is an issue on which we have received a large volume of evidence. There are those who believe that retaining the word “adequate”, especially when compared with “reasonable” in an analogous statutory provision, risks depriving the defence of any substance. In oral evidence Eoin O’Shea, a partner in Reed Smith LLP, and Chair of the Corporate Crime and Corruption Committee of the City of London Law Society, explained:
“The fact that the predicate offence has taken place or been established—an offence under section 1 or section 6, which is required before a section 7 offence can be shown—must mean that the procedures are not adequate because the bribery has taken place. That has to be wrong as a matter of analysis, because if it were right it would deprive the defence of all efficacy.”
205.One of the strongest arguments for change came from Professor Jonathan Rusch, a former Deputy Chief for Strategy and Policy in the Fraud Section of the Criminal Division of the United States Department of Justice (DOJ) and now Adjunct Professor at Georgetown University Law Center in Washington, DC. He wrote:
“The most specific challenge that companies face in anti-bribery and corruption compliance is that the “failure to prevent” language of section 7 continues to create uncertainty about whether their procedures will be considered “adequate” in the eyes of a judge or jury if, despite their best efforts, an executive or manager engages in a single act of bribery. The Ministry of Justice Guidance does state (p. 15) that “the commercial organisation will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing.” The fact remains, as the Standard Bank resolution shows, that even a single case of bribery is sufficient to lay the ground for a section 7 prosecution. Companies therefore remain concerned that if a single act of bribery slips through their compliance procedures, no matter how elaborate and well-supported by senior management they may be, a jury will conclude that by definition the procedures were “inadequate” and reject the company’s affirmative defense.”
206.Professor Rusch would like to see “adequate” replaced by “reasonable”, but added: “Even if the Committee is disinclined to revise the text of section 7 to reduce that inherent vagueness, it should at least urge the Ministry of Justice to amend its Guidance to state more specifically the importance of a company’s providing sufficient resources to make its anti-bribery compliance program effective.”
207.Another strong critic was the Aerospace Defence Security and Space Group, the trade body for those industries:
“The ‘adequate procedures’ defence … is palpably not working … Our assessment is that no Company can feel totally confident to put forward such a defence as it is hard to think of a scenario when it would have much chance of being successful. … As was stated by Industry representatives as the Bill was going through Parliament, companies like certainty and the ‘adequate procedures’ defence falls far short of that.”
These witnesses, and many others, would like to see the Act amended, and “adequate” replaced by “reasonable”.
208.Deloitte took a more nuanced view: “The DPA judgments published to date have suggested that the term ‘adequate procedures’ …. should be read widely, potentially meaning ‘adequate to prevent that particular bribery’ rather than the broader sense of ‘adequate in the context of the business and its risks’.” They point out that the judgments focus on whether policies and procedures are effective in influencing actions and behaviour, not simply on whether a policy or training exists or has been read or taken by the relevant people. In the Standard Bank case, the agreed Statement of Facts says: “Although [the bank] did have a relevant training system in place for its employees, the effectiveness of the training provided must be in doubt given that no … deal team member raised any concern …”
209.It is clear that, as we were told by Edward Argar MP, “it was not intended that the law should come down on well run companies just because there have been instances of bribery.” All the preparatory work of the Law Commission that we have cited, and statements by Ministers during the passage of the Bribery Bill, make this clear, as does the subsequent Guidance issued by the Ministry of Justice, which states:
“… the commercial organisation will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing. In accordance with established case law, the standard of proof which the commercial organisation would need to discharge in order to prove the defence, in the event it was prosecuted, is the balance of probabilities.”
210.We therefore have to decide whether, notwithstanding what was intended, there is a danger that “adequate” in the Bribery Act will be interpreted too strictly, so that a company which had in place anti-bribery procedures which were reasonable in all the circumstances but did not in fact prevent bribery taking place might be unable to avail itself of this defence. We think such an interpretation is very unlikely, and that it is equally unlikely that a judge, in directing a jury which has to decide on a balance of probabilities whether the procedures which a company had in place were “adequate”, would give them such a strict direction; any judge would surely instruct the jury to take the surrounding circumstances into account. We are accordingly not minded to recommend amendment of the Act, but we believe that the Guidance, which of course pre-dates the 2017 Act and the HMRC Guidance, should be amended.
211.We believe that it is unnecessary to amend the wording of section 7 of the Act, but that the statutory Guidance should be amended to draw attention to the different wording in the Criminal Finances Act 2017 and in the HMRC Guidance to that Act, and to make clear that “adequate” does not mean, and is not intended to mean, anything more stringent than “reasonable in all the circumstances”.
212.In the United States there is a procedure under which companies may formally request from the Department of Justice (DoJ) an opinion about “whether certain specified, prospective—not hypothetical—conduct conforms with the Department’s present enforcement policy regarding the antibribery provisions of the [Foreign Corrupt Practices Act]”. The procedure has never been much used. There were 61 Opinion Procedure Releases between 1980 and 2014, with only four in 2004, the busiest year. There have been none since 2014.
213.The question nevertheless arises as to whether it would be appropriate to have a similar procedure in the UK. Should UK companies be allowed to ask, for example, the SFO for an opinion as to whether the practices and procedures they propose to adopt are “adequate” for the purposes of a section 7 defence? One person who thought so was Monty Raphael QC. He argued in written evidence that the DoJ’s opinion procedure was “a valuable mechanism for companies and individuals to determine whether proposed conduct would be prosecuted by the DOJ under the FCPA”, and that “while it may be true that large corporations have ready and timely access to reliable advice and can afford to pay for it, many SMEs would doubtless value the creation of a state resource by which they could, if need be and for a modest fixed fee, receive an opinion they could rely on”. The law firm Greenberg Traurig was one of the few other witnesses to suggest that the UK should adopt an approach similar to the US Opinion Procedure Release programme.
214.Since the SFO, rather than the Ministry of Justice, would presumably have to bear the burden of preparing such advisory opinions, their view was of particular importance. Richard Alderman, who was Director from 2008 to 2012, set up such a procedure in July 2009, but before it could get off the ground his successor, Sir David Green QC dismantled it. His robust view was relayed to us by Monty Raphael QC:
“I don’t think the sign downstairs says ‘free advice given on serious fraud and corruption’. They can bloody well go and get their own advice from their very expensive ritzy experts … I am not here to give advice. I am here in the same way that the Revenue is, to enforce the law. I don’t think the public would be very impressed by cosy deals.”
215.Sir David Green himself retired in 2018. We asked the current Director, Lisa Osofsky, for her views. Despite having been in office only five weeks, she had no hesitation in giving them:
“Do I want to get into the business of that here? I do not. I have enough work to do. Boy, it would blow my budget if I were asked to give assurance all across the piste … I do not think I have the mandate from Her Majesty’s Government or the requisite skill set or funding to offer precursor-type advice. My job is to ferret out wrongdoing, to investigate robustly and then to determine whether charges are appropriate.”
And she added: “Frankly, DoJ is moving away from some of that. It used to have a compliance officer … to give compliance-related advice. DoJ has not filled that slot since she left three years ago.”
216.It is clear that the Government does not intend to give Ms Osofsky the mandate she does not want. Mr Argar said:
“We are not convinced that the US opinion procedure release programme would be right for this country. My understanding is that even in the US there is movement away from it—I believe there have been no releases since 2014. We do not think it is the right approach, because we do not think that it mirrors, or meshes well with, how our criminal justice system, decisions on prosecution and court system work.”
We agree with these views.
217.In this field, as in any other, it is for companies and their advisers to determine whether activities they propose to undertake or procedures they propose to adopt will comply with the law. Government departments and agencies can and do issue general guidance, but it is not their task to give advice in individual cases. The Serious Fraud Office should not revive the practice they once adopted of offering such advice.
218.The first prosecution under section 7 was of Sweett Group plc. The company pleaded guilty in December 2015 and on 19 February 2016 was ordered by HH Judge Beddoe at Southwark Crown Court to pay a fine of £1.4 million together with confiscation and costs, a total of £2.25 million.
219.The first contested section 7 case was brought to trial in 2018, when Skansen Interiors Ltd (SIL), a small furniture business with around 30 employees which was part of the larger Skansen Group, reported bribery by two of its employees, and was itself charged with the section 7 offence. Because this was the first contested section 7 prosecution, and also because of the implications for deferred prosecution agreements which we discuss in the following chapter, many of our witnesses referred to the case in written evidence and also in oral evidence. We also took evidence from Iskander Fernandez, who at the time of the prosecution was an associate at Cameron McKenna, the solicitors who acted for SIL, and a member of SIL’s defence team.
220.Some of the facts are still the subject of controversy, but those we summarise in Box 4 are uncontested.
SIL was, until it ceased trading in 2014, a small refurbishment company operating mainly in London. In 2013, it won two tenders for office refurbishment from a company called DTZ, worth £6 million in total. In January 2014, the Skansen Group appointed Ian Pigden-Bennett as its new CEO. SIL’s Managing Director, Stephen Banks, informed the new CEO that following the award of the DTZ contracts to SIL, £10,000 had been paid to Graham Deakin, a project manager at DTZ. Mr Banks also said that a further £29,000 was due to Mr Deakin on completion of the contracts.
Mr Pigden-Bennett was concerned that these payments were designed to give Skansen an improper advantage over its rivals in the DTZ tender. He therefore initiated an internal investigation and established an anti-bribery and corruption policy, having identified that none appeared to be in place. When Mr Banks attempted to make the £29,000 payment to Mr Deakin, it was blocked, and at the conclusion of the internal investigation, both Mr Banks and Skansen’s Commercial Director were dismissed.
Skansen then submitted a suspicious activity report to the National Crime Agency and reported the matter to the City of London Police. The company gave extensive assistance to the police during their investigation, including handing over legally privileged material. At the conclusion of the investigation, Mr Banks and Mr Deakin were charged with and pleaded guilty to offences under sections 1 and 2 of the Act. Mr Banks was sentenced to 12 months’ imprisonment and was disqualified as a director for 6 years, and Mr Deakin was sentenced to 20 months’ imprisonment and was disqualified as a director for 7 years.
221.SIL itself was charged under section 7. It declined to plead guilty on the grounds that it had in place adequate procedures to prevent bribery. Although its controls were limited, it argued that they were proportionate for a small company operating only in the United Kingdom. There were also clauses in the DTZ contracts prohibiting bribery and providing a termination right in the event that bribery occurred. The jury did not accept SIL’s defence and returned a guilty verdict. Given that the company had no assets by this time, the only decision available was an absolute discharge.
222.It may be significant that the prosecution was brought by the CPS rather than the SFO. Criticism of the prosecution of SIL centred on the fact that Skansen had self-reported, and had given extensive assistance to the police. Cameron McKenna commented:
“In response to queries raised (including by the Judge in an earlier abuse of process hearing), the prosecution justified its use of public resources to charge and prosecute a dormant company with no assets on the basis that a successful conviction would ‘send a message’ to others in the industry about the importance of having adequate procedures in place. No other public interest justification was provided for pursuing the prosecution.”
In oral evidence Iskander Fernandez told us that this message could have been sent to the construction industry by the prosecution of the two individuals.
223.In their written evidence the City of London Police told us:
“In the recent case of R v Skansen Interiors, a new company director discovered bribes paid by one of his sales team to obtain a contract to renovate offices. Prior to reporting this offence to the police, the company transferred all assets to the parent company and dissolved the company, sacking those responsible for the bribery. This meant that when considering corporate bribery offences the company no longer existed and would face no penalties.”
224.But in subsequent oral evidence Commander Karen Baxter, the National Coordinator for Economic Crime of the City of London Police, said: “This comment might, on reflection, not be entirely accurate. When this was written there was quite a high-profile case in court [Skansen] that was subject to significant media attention. Therefore, what was written was more a response to the perception of the discussion ongoing at the time.”
225.At our final evidence session Iskander Fernandez told us that the re-structuring which involved moving assets away from the subsidiary (SIL) took place in 2010–11, before the offences were committed: “The reason for moving assets away from the subsidiary company was not because of the prosecutions or suspicions that it would be prosecuted”. And later still Ian Pigden-Bennett, the CEO of the Skansen Group, wrote to tell us that the City of London Police were “totally incorrect” with their suggestion that the company was dissolved to avoid penalties, and set out in detail the facts as he saw them.
226.Skansen was a far from typical case. The suspicion lingers that SIL was perhaps not fairly treated by the CPS either in relation to the prosecution or in relation to the refusal of a DPA. If it was indeed the intention of the CPS to draw attention to the need for even small companies to have in place adequate anti-bribery procedures, in that they certainly succeeded. But otherwise we agree with John Bray, the Director of Control Risks, who said: “I would not draw many conclusions at all from the Skansen case. For me, the main lessons are that you need to have something rather than nothing. You need to record what you are doing. For me, that case is an outlier.”
227.The extension of the “failure to prevent” offence from bribery to facilitation of tax evasion has been generally welcomed, and some witnesses have suggested that this would be a good way of improving the conduct of companies in relation to economic crime generally. Hannah von Dadelszen, the Head of Fraud at the SFO, told us that:
“the SFO has long lobbied for a development in the area of corporate criminal liability. Our position has been that we have a very sensible failure-to-prevent offence for bribery under section 7. That regime has been adopted in a tax arena in that the facilitation of tax evasion carries with it a failure-to-prevent offence both domestically and overseas. What is the impediment? Why should we not also have that for broader economic crime? For me, as head of an operational division dealing with these issues, that would certainly be a very effective tool … I think we need the failure-to-prevent model that currently exists in section 7 to apply more broadly to wider economic crime, such as Fraud Act offences, money laundering offences and FiSMA offences.”
228.Donald Toon of the National Crime Agency, was rather more cautious:
“Yes, we support it, but we think that it has to be done very carefully. There is a need for real care around how any broader offence is structured and focused, and the level of preparation that would be required for its introduction—that is, the level of attention that would have to be paid to understanding what mitigations are needed in corporate structures against the risk of becoming involved in wider economic crime.”
229.As early as May 2016, before the Criminal Finances Act was passed, David Cameron, then Prime Minister, called for consultation on a new offence of failure to prevent economic crime, and in January 2017 the Ministry of Justice issued a consultation paper on the wider issue of reform of the law on corporate liability for economic crime. The consultation closed at the end of March 2017. Two years later, the responses to the consultation have still not been published by the Government, which has not given its views. However on 18 March 2018 Robert Buckland QC MP, the Solicitor General, said in an interview that there was a strong case for a new corporate offence of failure to prevent economic crime. On 4 December 2018, when Ministers gave evidence to us, Mr Argar said: “We intend to publish our response to it [the consultation] next year,” and Ben Wallace MP added: “The Solicitor-General and I are pretty keen that we explore further the failure to prevent in broader economic crime … We raised it at the last inter-ministerial government meeting on it. John Penrose and I are keen to see this.”
230.The responses to the Government consultation, though unpublished by the Government, are widely available on the websites of the respondents. None that we have seen opposes the extension of the “failure to prevent” offence; many support it, as have our witnesses who have addressed the issue.
231.We hope the Government will delay no more in analysing the evidence it received two years ago and in reaching a conclusion on whether to extend the “failure to prevent” offence to other economic crimes.
232.If Government action includes further legislation, a decision will have to be reached on the wording of any due diligence defence. On the assumption, which we believe to be correct, that there is no intended or actual difference in meaning between “adequate” procedures and procedures which are “reasonable in all the circumstances”, we believe the latter more clearly gives the intended meaning.
225 Liability of legal persons for fraud, active corruption and money laundering.
226 “any person, acting either individually or as part of an organ of the legal person, who has a leading position in the legal person”
227 Council Act of 19 June 1997 drawing up the Second Protocol of the Convention on the protection of the European Communities’ financial interests (97C 221/02), (19 July 1997), p 11
228 Law Commission, Reforming Bribery: A Consultation Paper, CP185 (2007), paras 9.38-9.40: [accessed 5 March 2019]
229 Council framework decision 2003/568/JHA of 22 July 2003 on combating corruption in the private sector, (31 July 2003), p 54
230 Explanatory Report on the Second Protocol to the Convention on the protection of the European Communities’ financial interests, , (31 March 1999), para 4.3.
231 Law Commission, Reforming Bribery, (Report No. 313) 19 November 2008, paras 6.70–6.71: [accessed 17 January 2019]
232 Ministry of Justice, Bribery: Draft Legislation, Cm 7570, March 2009: [accessed 17 January 2019]
233 Written evidence from Transparency International UK ()
234 Law Commission, Reforming Bribery: A Consultation Paper, CP185 (2007), paras 9.38–9.40: [accessed 5 March 2019]
235 Law Commission Report, Reforming Bribery (Report No. 313), 19 November 2008, para 6.97: [accessed 4 March 2019]
236 Ibid, para 6.106
237 Ministry of Justice, Bribery: Draft Legislation, Cm 7570, March 2009, clause 5(4): [accessed 17 January 2019]
238 Written evidence from PwC ()
239 (Iskander Fernandez)
240 The Facilitation of Tax Evasion Offences (Guidance About Prevention) Regulations 2017 (), which brought the Guidance into force on 30 September 2017.
241 HM Revenue & Customs, Tackling tax evasion: Government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion (1 September 2017): [accessed 21 January 2019]
242 Ibid., p 34
243 Emphasis in the original.
247 Written evidence from Fieldfisher ()
248 For example Greenberg Traurig ().
249 Written evidence from Eversheds Sutherland ()
250 For example, Baker McKenzie (), Clifford Chance (), Peters and Peters () and the Law Society of England and Wales, City of London Law Society and Fraud Lawyers Association ()
251 Written evidence from Transparency International UK (), para 3.4.2
252 Ministry of Justice, The Bribery Act 2010: Quick start guide (February 2012) [accessed 21 January 2019]
253 Transparency International UK, Diagnosing Bribery Risk: Guidance for the Conduct of Effective Bribery Risk Assessment (July 2013): [accessed 21 January 2019]
254 Paras 168–75 above
256 HL Deb, 2 February 2010, . Amendment 9 moved by Lord Henley on Report.
257 HC Deb, 16 March 2010, . Amendment 12 moved by Jonathan Djanogly MP in Committee, 2nd Sitting.
258 HMRC, Tackling offshore tax evasion: a new corporate criminal offence of failure to prevent the facilitation of evasion, 16 July 2015 [accessed 4 March 2019]
259 Ibid., paras 2.18–2.19
260 Written evidence from Peters and Peters Solicitors ()
261 Standard Bank plc and XYZ. See Chapter 7 for a full explanation.
262 (Sir Brian Leveson)
263 See paragraphs 218–226 below.
264 Her Honour Judge Deborah Taylor
265 (Iskander Fernandez)
266 (Eoin O’Shea)
267 We note that while this was indeed a single case it was a particularly high risk transaction, involving as it did the Government of Tanzania and a “local partner” which included amongst its shareholders/directors the Commissioner of the Tanzanian revenue authority. There was no tender and no documented due diligence on the local partner and no evidence of services provided to justify the US$6m fee which was paid into an account opened for the local partner by Standard Bank’s subsidiary. See further Chapter 7, paras 250–53.
268 Written evidence from Professor Jonathan Rusch ()
269 Written evidence from Aerospace Defence Security and Space Group ()
270 For example, UK Finance (), (Amanda Pinto QC, Neil Swift) and (Mark Anderson, Partner and Head of Corporate Intelligence, PwC)
271 Written evidence from Deloitte ()
272 See Chapter 7 for more details of that case.
273 Ministry of Justice, , para 33
274 The FCPA Blog, Richard L. Cassin, ‘Are DOJ opinion procedure releases headed for extinction?’ (28 December 2015): [accessed 5 February 2019]
275 Written evidence from Monty Raphael QC (), paras 18–19
276 SFO, Approach of the Serious Fraud Office to Dealing with Overseas Corruption (2009), pp 6–8: [accessed 17 January 2019]
277 Written evidence from Monty Raphael QC (), para 19
278 (Lisa Osofsky)
279 (Edward Argar MP)
280 SFO, News Releases, ‘Sweett Group PLC sentenced and ordered to pay £2.25 million after Bribery Act conviction’ (19 February 2016): [accessed 19 February 2019]
281 See paras 223–25 and 278–80.
282 A more detailed account can be found at (Iskander Fernandez).
283 CMS Law-Now, ‘The jury is out on compliance in the first test of the Bribery Act’s adequate procedures defence’, (1 March 2018): [accessed 4 March 2019]
284 (Iskander Fernandez)
285 Written evidence from City of London Police ()
286 (Commander Karen Baxter)
287 (Iskander Fernandez)
288 Written evidence from Ian Pigden-Bennett (), 10 December 2018
289 See paras 277–80.
290 (John Bray)
291 (Hannah von Dadelszen)
292 (Donald Toon)
293 Joe Watts, ‘Minister says time has come for new corporate offence of “failing to prevent economic crime”’, The Independent (18 March 2018): [accessed 21 January 2019]
294 John Penrose MP, the Government’s Anti-Corruption Champion.
295 (Ben Wallace MP)