In the EU and in the US, companies and individuals can be suspended or even debarred from public procurement on public policy grounds if they are found or suspected to have committed specific offences.

The offence of bribery is a cause for debarment in both the US and the UK. The two countries have however taken a different approach to debarment. In the US, both debarment and suspension are measures which are imposed for a limited period of time at the discretion of public authorities or agencies. In the EU and in the UK, debarment is mandatory, permanent and used as a deterrent. These differences in approaching debarment have created an uneven playing field on both sides of the Atlantic. Further, the future implementation of Bribery Act in the UK raises new issues and more uncertainties concerning the approach which will be taken by prosecuting authorities towards debarment in this country.

In the US, public authorities and agencies have a discretion to suspend or debar persons or companies under the Federal Acquisition Regulation (‘FAR’). In a nutshell, administrative debarments and suspensions are usually imposed where contractors are convicted or suspected of offences relating to bribery, fraud and drug trafficking. The underlying public policy goal of the FAR is to prevent improper dissipation of public funds and to avoid excluding contractors who appear unlikely to engage in similar prohibited conduct in the future. The US administration maintains a searchable database (the Excluded Parties List System ) of persons who have been debarred or suspended from receiving Federal contracts (https://www.epls.gov/).

In the UK, Regulations 23 of the Public Contracts Regulation 2006 and 26 of the Utilities Contracts Regulations 2006 (‘the Regulations’) govern debarment. In summary, these regulations provide for the debarment from public procurement contracts of an “economic operator” by a “public contracting authority” when it has actual knowledge that the economic operator (or its directors or representatives) have been convicted of offences relating to corruption, bribery, fraud or money laundering. Public authorities have no duty to investigate whether economic operators have been convicted of relevant offences. Debarment is permanent. There is no central European database to list convicted operators in the EU.

The Bribery Act has called into question how these Regulations will be applied in light of the new bribery offences created under the Act. In particular section 7 (failing to prevent bribery ) has provoked much debate as to whether a conviction under this strict corporate liability offence should lead to an automatic debarment. On 23 March 2011, Ken Clarke, the Secretary of State for Justice, confirmed in Parliament that an organisation convicted under that section will not be automatically be barred from tendering for public contracts. However, he stated that public authorities will still have the discretion to exclude organisations convicted under section 7 pursuant to the Regulations and also announced that a consultation on changes to the Regulations would be launched shortly.

Clearly in the EU, the mandatory and permanent characteristics of debarment can lead to drastic consequences for companies and individuals trading within this economic area. The difference of approach between the US and the UK as regards debarment (discretionary/ mandatory) and the difference concerning the effects of these measures (temporary/ permanent) have important practical consequences on how cross-border corruption will impact upon prosecuting authorities in the UK and in the US. The drastic effects of debarment in the EU have lead US prosecuting authorities to accept guilty pleas from European offending companies for breaches of accounting provisions in order to avoid a conviction for bribery. For example, in the case of Siemens, which involved allegations of corruption by the German parent company and its subsidiaries in Argentina, Bangladesh and Venezuela, guilty pleas for bribery were only entered by its non-European subsidiaries to avoid debarment in the EU.

Bearing in mind that the debarment regime will shortly be reviewed in the UK, perhaps the following issues could be considered by the government during in its next consultation on the Regulations:

  1. Should more flexibility and more discretion be given to public authorities in the UK in the debarment process?
  2. Should public authorities be under a duty to investigate whether economic operators have been convicted of relevant offences?
  3. What weight should prosecuting authorities give to debarment when deciding or not to prosecute?
  4. Should a European central database be created to list all convicted economic operators in the EU?
  5. Should debarment be extended to the foreign subsidiaries of a European parent company?
  6. Should foreign convictions of related companies be taken into account?
  7. Should the duration of the exclusion (currently indefinite) be more proportional?

The Bribery Library will be blogging on this issue further as the debate progresses.