On 20 November the Law Commission published the results of its consultation exercise on how to reform the law of corruption. The Government has said that it will consider the proposals and issue a draft bill for comment in the next parliamentary session. Whilst this may cause a sense of déjà vu in that a draft bill was issued a few years ago, this time there must be a real impetus to change given the OECD’s criticisms in March 2007. Since the previous draft bill was published there has been a recognition that there needs to be significant change to ensure that companies take steps to put in place full and effective policies and procedures to prevent corruption within their organisation.
The Law Commission do not propose that any changes are made at this stage to the ways in which corporate entities incur criminal liability directly for acts of corruption, preferring instead to delay dealing with this issue until their wider evaluation of corporate criminal liability. However, they do instead propose a negligence offence for failure to prevent bribery by an organisation. If these proposals are taken up by the Government this will be a major sea change in the approach to dealing with corruption in England and Wales. Companies will need to ensure that they both put in place policies and procedures to prevent employees and others acting on their behalf from engaging in corrupt conduct but also take steps to ensure that these policies and procedures are implemented effectively. To ensure a sense of proportionality, it is welcomed that the Law Commission recognise that a one off act of negligence by the organisation in failing to stop a rogue employee or agent acting corruptly should not be penalised where the company can show that there were adequate procedures in place designed to prevent persons acting corruptly.
Changes to the active and passive bribery offences
The old offences will be repealed and four new offences will be introduced
The first, will criminalise the conduct of the payer of a bribe where a person directly or indirectly, offers, promises or gives an advantage to another, intending it to induce another person to do something improper or reward someone for behaving improperly.
The second offence will deal with the payee of a bribe and will criminalise the conduct of the payee where he (a) requests an advantage, intending that he or another should in consequence behave improperly; (b) requests or accepts an advantage and the request or acceptance itself constitutes improper behaviour; (c) asks for a reward for improper behaviour or (d) behaves improperly in anticipation or in consequence of requesting or accepting an advantage.
Under the old legislation behaviour was criminal where it was corrupt. There was no statutory definition of corrupt and in practice, it could be difficult to characterise. The new offences will criminalise payments or offers of payment where the advantage is intended (or is known or believed) to cause someone to behave improperly. Under the proposals, activities which could be corrupt will be limited to those of a business, professional or public nature.
Improper behaviour will be that which is in breach of:-
- an expectation that someone will perform a function or activity in good faith;
- an expectation that someone will perform a function or activity impartially;
- an expectation created by the fact that someone is in a position of trust.
These new offences will apply to acts committed in England and Wales but also to acts committed outside the UK where the person is for example, a British citizen, a British overseas citizen, a person who was a British subject, a person ordinarily resident in any part of the United Kingdom, or a body incorporated under the law of any part of the United Kingdom.
Bribery of foreign public officials
The third new offence is a standalone offence applying to the bribery of foreign public officials. Given the extra territorial application of the above offences, such an offence could seem to be superfluous to requirements. The Law Commission’s view is that such a standalone offence will make it easier for the courts to interpret the scope and nature of the offence against the evolving background of the OECD Convention.
Under the proposals it will be an offence for a person to bribe a foreign public official if the intention was to influence the official in his capacity as a foreign public official. An offence will be committed where a person, directly or through a third party, offers, promises or makes a payment of a financial or other advantage to an official or to another person at the official’s request or with the official’s assent or acquiescence.
However, importantly no offence will be committed if in the local jurisdiction the official is permitted or required to accept a particular financial or other advantage i.e. it is legitimately due. In addition it will be a defence if the person charged reasonably believed that what he did was required or permitted under local law. Whether a belief is reasonable is to be determined having regard to all the circumstances, including any steps that the person took to find out what was required or permitted under the law applicable to the public official. The example the Law Commission provides of the circumstances in which such a defence would operate is where:-
“P asks R, a civil servant in Blueland, to process quickly P’s application for a licence to engage in construction work in Blueland. R says that will only be possible if P helps to build a new school in Blueland. P agrees to provide the help. The law applicable to R says that favourable treatment may be given to foreign businesses if they agree to fund genuinely charitable work in Blueland. P checks the register of charities in Blueland, and it includes the company in charge of building schools to which P is to pay the money. Unknown to P or R, the company’s charitable status expired a month before. The register had not been updated.”
The implication being that in that situation the defence would apply as P took steps to ensure that what P did was required or permitted under local law.
What is less clear is how the overlap between this offence, to which there are proposed statutory defences, and the first offence, to which there are no such defences, will be dealt with in practice. A defendant charged with the first offence could argue that he did not have the requisite intent to induce a person to perform a function improperly (ie where the gratuity was permitted under local law), it is possible to foresee circumstances where the gratuity was permitted but it is still intended to ensure that the recipient breaches a duty to act in good faith and would therefore still be criminal. There would seem to be no reason why the two offences should not be similarly defined and have similar defences. As the offences are not the same this could mean that there is an unequal playing field between the public and private sector.
Corporate criminal liability
The Law Commission have recommended that as regards corporate liability for an offence of paying a bribe, that the current position should be maintained, such that a corporate will only be liable for an offence of offering or paying a bribe where a director or senior manager would also be liable for the same offence (the identification principle). This is because there will be a more general review of corporate criminal liability in due course.
Corporate liability for failing to prevent bribery by someone acting on the organisation’s behalf
Instead the Law Commission proposes a new offence which would apply to companies or limited liability partnerships (with a registered office in England and Wales) who negligently fail to prevent an act of bribery by a person performing services on behalf of the organisation in question. The negligence required is that of a person employed by or connected with the company and it must be shown that one of the functions (express or implied) of this individual, was to prevent the commission of acts of bribery by a person acting on behalf of the company.
The use of a negligence test in setting the level of behaviour required to prove a criminal offence is something which is relatively uncommon under English law. Negligence is a standard more commonly adopted in the civil courts. However, its use in the criminal field is not unknown: there is a negligence test in the money laundering arena where those in the regulated sector are expected to report money laundering where they have reasonable grounds to suspect that another has engaged in money laundering. The use of a negligence test here is required, according to the Law Commission, to ensure that a company’s board put in place good ethical procedures to prevent corruption - “incentives to adopt a good practice must be underpinned by legal duties that, if breached, may lead to legal action to punish and deter bad practice.”
An adequate systems defence
Importantly the Law Commission propose that it will be a defence for a company to show that there were adequate procedures in place to prevent bribery by a person performing services on behalf of the organisation in question. The idea being that a company would be prosecuted for endemic and systemic failings as opposed to one off errors of judgment.
The defence is not available where the negligent failure to prevent bribery was attributable to the actions of a director of the company or their equivalent. The offence in the draft bill refers to “a director, manager, secretary or other similar officer of the company or a person purporting to act in any such capacity.” However, the Law Commission make it clear in the commentary that it is only directors and senior managers whose negligence will make the defence inapplicable, a one off breach by an employee’s supervisor will not cause the company to be liable where the company had good systems and procedures in place to prevent bribery.
It is interesting that the Law Commission have decided not to allow the defence to apply where it is the negligence of the board or a senior manager which has led to the act of bribery by the employee. Obviously it is important to place the onus on the board to ensure that a firm does have good policies and procedures in place.
What does a company need to do to reduce the risk of being liable for this offence?
The aim of the offence will be to try and ensure that companies on an organisational level take steps to forestall and prevent corrupt payments being made on their behalf.
Herbert Smith has recently introduced a health check to benchmark a firm’s anti bribery policies and procedures against best practice click here.
Under the Law Commission’s proposals it will be easier to bring charges relating to corrupt conduct against corporate entities that do not have appropriate policies and procedures in place.