Joint Committee on The Draft Corruption Bill Minutes of Evidence


Examination of Witnesses (Questions 20-39)

MR LAURENCE COCKCROFT, MR JEREMY CARVER CBE AND MR GRAHAM RODMELL

13 MAY 2003

  Q20  Chairman: It seems clear that the prosecution has not relied on the presumption in recent years to any great extent, if at all.

  Mr Carver: That is almost certainly true.

  Chairman: On individual offences, apart from the South African model, what is the position in other countries in Europe? Do they have specific offences as well as or rather than the global, general approach?

  Mr Garnier: To add to that, could I ask whether other countries claim extraterritoriality for their law?

  Q21  Lord Campbell-Savours: Could you comment on Malaysia.

  Mr Carver: I think all three of us would be floored by your last question. I do not think we are sufficiently up with Malaysian legislation. The South African legislation we have examined and that owes at least part of its origin to legislation that has been presented in Malaysia and Nigeria, at least some parts of which Transparency International has contributed to. I suspect we looked in particular at the South African Bill because it is very recent. The fact is that it is essentially a common law principle that has been used. It is relatively clear and simple. We felt it had very many advantages over the type of scheme of the legislation that had been presented to Parliament. On the second question about legislation on the continent, the fact that it comes from a different tradition is less important, to my mind. Law making today in a world that is increasingly converging should not rely too heavily on differences of tradition between common law and civil law. I am quite sure that you, my Lord Chairman, would endorse that from your own experience. Legislation should, so far as possible, be comprehensible to anybody in Europe. I know that, for example, Switzerland has been through an enormous exercise in trying to reform its legislation because, at a time when Switzerland played a leading part in concluding the OECD Anti-Bribery Convention in 1997, there was a consciousness within the Swiss authorities that their own legislation was hopeless in terms of criminalising corruption. Therefore, they had to make a major reform in order to be able to ratify. It was not an easy process to present and to drive that legislation through, and I wish that I was in a position to report more accurately what the result was.

  Q22  Chairman: Without going into detail, in the Community do countries on the whole have specific offences rather than this global approach or do they divide so that some do and some do not?

  Mr Rodmell: I am not in a position to comment and I think it might be more helpful if we offer to supply a paper that perhaps looks at one or two continental systems. In terms of implementing the OECD Convention, one or two of those countries have brought that in as a specific offence.

  Q23  Chairman: Where you have specific offences rather than this general offence, how often do gaps appear? Is it that people escape because, although they are doing things which are within the general concept of these individual offences, some clever lawyer manages to persuade the court that they are not within the individual offence?

  Mr Carver: One of the manifestations of gaps is absence of prosecution. Prosecutors tend to be very hard pressed. They tend to have too many things on their plate anyway. If there is an element of doubt as to whether or not they can bring home this particular charge, they simply will not make the charge at all. That is part of the problem. Where the law is unclear, where it simply does not help to comprehend where an offence has been taken, there will not be prosecutions.

  Q24  Chairman: It is not a question of prosecutions failing but howls from the public that people cannot be prosecuted?

  Mr Carver: I suspect that is where it manifests itself.

  Q25  Mr Garnier: Have there been howls of that nature in this country recently?

  Mr Carver: Howls in the sense that there is a mounting degree of concern among those involved, not just NGOs, but those involved with the integrity of the city and business, that we really are in a very poor state indeed in terms of legislating against corruption. This brings into play quite unnecessary risk into business activities which should be eliminated. This risk element is unacceptable from a narrow perspective of trying to conduct a business profitably and successfully and also in terms of colossal waste, particularly in the field that we are plainly concerned with, which is effective development around the world.

  Q26  Mr Garnier: Is the push coming for the prosecution of British people and companies for things they do overseas in order to get contracts or is the push in this country to catch people for insider trading or taking public officials on corrupt holidays? I am not sure where the main pressure is coming from.

  Mr Cockcroft: Because this is an omnibus reform of the law on corruption it is coming from several different sides presumably because the existing legislation is considered to be too weak in relation to domestic offences and, on the overseas side, it is coming from the accumulation of several international conventions and responsibilities which the UK has. On the convergence of legislation, particularly on the continent, it is important to recognise the role of the Council of Europe Convention on Criminal Law which is designed exactly to bring the legislation within Member States or the EU accession countries and so on, into a common framework. That Convention is extensively based on specific offences. Since we are all trying to move in that direction, I think that is a very important issue. The UK is not currently in a position to ratify that or will only ratify it by making an exception of certain offences such as trading in influence.

  Chairman: We are not only concerned with what goes on in this country; we are concerned with what people and companies in this country do overseas in looking at this matter.

  Q27  Baroness Whitaker: I wanted to ask about the reputation risk to companies which have links with UK companies. In your paper you say that clause 13 should be broader to include subsidiary countries' joint ventures. I am aware of an awful lot of shadows over companies which are not direct UK companies but which are held by them, related to them or have joint ventures with them. In various kinds of employment law, the subcontractor is bound by the law and it is the main contractor's legal duty to ensure that the subcontractor obeys the same law. Can you expand a little on your recommendation?

  Mr Cockcroft: Our central argument is that United Kingdom prosecutors should be able to prosecute companies which are responsible for the actions of subsidiaries or effectively controlled joint ventures, so that very few bribes or corrupt acts would take place directly from a UK based company in any country in the world. In nearly all cases, it would be done through an intermediary. Sometimes that would be a subsidiary. Sometimes it would be an intermediary agent working closely with that subsidiary. Even more often, it would be a joint venture which is rather more difficult to catch, but nonetheless highly relevant. If we look at the case of IBM in Argentina; IBM Argentina was found guilty of paying a bribe about two years ago. IBM in the US finally accepted responsibility for that and paid the fine to the SEC. These linkages are crucial and we would like to see this legislation drawn in such a way that, where a UK company has effective control over a subsidiary, or even a joint venture partner, that is covered by the Bill.

  Mr Carver: The United Kingdom law against corruption, the mixture of common law and statutory offences that this Bill proposes to sweep away, has on certain interpretations been quite tough anyway. The well advised company for many years now has been set up with commission arrangements made through a company using probably lawyers in another jurisdiction that is able to establish a company in this way. There is no formal link, save for the purpose of being able to deduct the payments made to the intermediary for tax purposes. That system, which has been used and multiplied many times over at least 20 or 30 years, is not necessarily brought under control by this Bill. There is a suggestion that intermediaries will still be left out. If the Bill is really going to tackle the mischief, most people who understand the way in which international business is conducted are aware of the role of intermediaries. I have heard, for instance, Italian businessmen describe the mechanisms that British companies have used in order to set up their doubtful payments as being crude in the extreme and no self-respecting Italian company would possibly do it this way. We are not tackling that problem.

  Q28  Vera Baird: I wanted to ask you about the comparison between clause 13 and the Anti-Terrorist Crime and Security Act where clause 13 goes significantly beyond the offences in the 2001 Act, noting that there have been no prosecutions under that so far. Why would you say that was?

  Mr Rodmell: Perhaps I can take the second part first, as to why there have not been prosecutions so far under part 12 of the 2001 Act? There is a practical point here that it only came into force in February of last year. Certainly in terms of international corruption, some of these deals take a long time. If the view is taken, as I know it is, by the Serious Fraud Office, that every component of that offence has to take place after 14 February, then there is a time of gestation through which it has to go. There are a number of other reasons why there are not any prosecutions yet. There is the question of gathering the information. The detailed arrangements as between the various investigative prosecuting authorities have quite recently been formulated so that each body knows what it is now to be doing. There is a feeling I have detected within those that should be prosecuting, within the police, that it is just all too difficult. They do not have the resources. It is all too expensive. They do not have budgets. They cannot count on the cooperation of the country in which the bribe has taken place, which frequently can be the case, because you are dealing with a country where corruption is endemic and it is likely that the government authorities will be closely implicated. We would not under-estimate those difficulties, but if you have part 12 there, we do not want to think that people are perhaps collapsing in front of the difficulty. They should be addressing those points. There is also a belief around that somehow it is a victimless crime. It is taking place somewhere else and nobody is damaged; whereas we would say that there are real victims. If it is referred to police forces, we find that many of them do not have fraud squads any more, let alone anyone able to understand corruption. The SFO is dependent on the use of specialist police being made available. They have some professional staff but they do not have the police back-up allocated to them as such. There are a lot of reasons why it does not happen. I do not think they are getting all the intelligence they could from the ECGD because the ECGD will tolerate a certain percentage of every contract deal that they support by way of being reasonable in the circumstances. If you take a percentage of a multimillion contract, that is a lot of money. We are not talking about small payments. They will not inquire into the services that are provided for those commission payments, so there is work to be done in that area. I suspect, having looked briefly at the Criminal Bar's submission to this Committee, in opposing extraterritorial jurisdiction, the Bar—no disrespect to members of the Bar—I do not think are in touch with the reality of this world where corruption respects no borders between countries. It is going on internationally. Simply to make this offence prosecutable at all anywhere it has to be extraterritorial. Those are some of the reasons why there is none at the moment. One expects and hopes that, with the information coming through from the diplomatic posts, perhaps some will shortly start. We have a concern about the comparison of this Bill with the 2001 Act, part 12. That came in following 11 September and had to be done with what was available, and what was available was the common law and the quaint old statutory offences of 1899, 1906 and 1916. That was very effectively done in very short compass. Those sections have been capable of being used and have guided what businessmen will do more for many years. At least those offences, for what they were, read over into the new international situation. When you come to look at this Bill, for some of the reasons I have already illustrated, I think it would be virtually impossible to prosecute for the foreign element. I am really quite disturbed when I see the way in which the foreign element is brought in. It comes in like a side wind. If you look at 6(6) you get: "References to the public are not confined to the public of the United Kingdom or of any part of it". You get 11(2) where it says: "It is immaterial, if—(a) the functions of the first person have no connection with the United Kingdom; (b) the affairs or business of the second person . . . have no connection with the United Kingdom.". Legally it probably gets there but why should there not be a specific inclusion of the offence wherever it takes place? It is an offence to commit these crimes in any part of the world. It is a side wind approach and I do not think it will be as effective as part 12 of the 2001 Act, I am sorry to say.

  Q29  Mr Garnier: Have any of you noticed in legislation in other countries where they have strict anti-corruption laws dealing with extra-territorial matters whether a) that has an effect upon conduct of business and businessmen and women in those countries and whether b) it has had an effect upon the commercial culture of overseas countries, or does it purely displace corruption from American businessmen to French businessmen or from French businessmen to Italian businessmen or whatever?

  Mr Carver: There probably is evidence to demonstrate that it does have an effect. For example, Germany was one country that had no foreign extra-territorial element to its anti-corruption legislation and it was said that Germany was corruption free on the domestic front but there would be no inhibition whatsoever in terms of the illegality of paying bribes to foreigners, that German companies did this as a matter of course, and certainly I have heard of a former Trade Minister of a British government make the claim that the German and French companies bribe foreign officials as a matter of course and therefore it is essential that British companies should be able to do the same. This to my mind is not only unacceptable as a proposition but it is also something that is dealt with and has been dealt with where countries have taken seriously the transformation of their domestic law to be able to abide by the obligations under particularly the OECD Convention and increasingly the other Conventions that are coming along, not least the UN Convention, in due course.

  Mr Cockcroft: I catch the flavour of your question and as TI, not only in this country but elsewhere, we are being approached increasingly by large mainly multi-nationals to discuss with us their approach to the issue of international bribery and what they might do about that, and of course from this country BP and Shell are leaders in that field and have set quite a powerful example. Several inter-related points. First of all, the Convention covers 80 per cent of world trade so the countries which are signatories to the Convention account for 80 per cent of world trade, which is quite significant. Secondly, in some of the countries in which TI is active such as Kenya, we are finding that, for example, a corporate ethical business forum has been established and is relating to the new regime led by President Kibaki. That is a step that was started 10 years ago and it is not just because of a change of government; it is something that was planned before the change of government, so it is a change of mood in the corporate sector. In South Africa the Corporate Governance Reform Act had a huge impact on businesses there, including the ones listed here. I think you can see there has been a change of mood. Most countries that are signatories to the OECD Convention have only changed their legislation in the last three years. The Convention was signed in 1997 and ratified in 1998 so it is still relatively early days.

  Q30  Mr Stinchcombe: Just one final question going back to your side wind argument. Given the terminology of clause 13 whereby corruption committed outside of the UK is covered here, could we simplify the Bill by deleting those offending provisions you referred to 6(6) and 11(2)(a)?

  Mr Rodmell: I would want to think quite long about that. I think that clause 13 is directed more to jurisdiction, although I have to say 13(3) rather backs up your argument. I really would not want to make a snap judgment on that, I would like to think about that.

  Chairman: It is already clear to me that there are questions which will come to us in the course of the next two or three weeks which we will probably want to ask for your answers in writing and we will keep that as one of the topics to which we will come back. We have got a number of other shorter topics which we ought to try and deal with tonight if only in item form. One of the things that concerns some people is the level at which you pitch corruption.

  Q31  Mr MacDougall: I think it has been widely accepted as the CBI's opinion on this that they would like specific exemptions or defences provided for corporate hospitality and promotional expenditure as happens in the United States. We are talking here about facilitation payments and the clear link between facilitation and corruption and how and whether you bring about a system where if you did introduce a particular piece of legislation that covered particular topics. You mentioned level playing surfaces. The International Development Committee rejected tolerance of facilitation payments or petty disbursements although we all accept in certain sectors in Europe and in the United States this is quite acceptable. I suppose my question leads me to ask you in your opinion should there be a threshold below which prosecutions would not apply? Do you think that should be something that should be considered?

  Mr Cockcroft: No, we are against having a minimum threshold spelt out in any sense of the word, whether in terms of the question of prosecution or otherwise. I would like to break down your question between entertainment and hospitality and facilitation payments because in our analysis of the issues they are rather different things. Entertainment and hospitality can edge into trying to influence a particular deal. Facilitation payments is often presented as a source of extortion in a difficult developing country where conditions are overwhelming. We would tend to dispute that extortion is really the leitmotiv that underlies facilitation payments if I can focus on that for a moment. You are right to say that the Foreign Corrupt Practices Act exempts facilitation payments from the Act but we have done an analysis of how all of the signatories of the OECD Convention have dealt with facilitation payments in their legislation. There are at least three different categories: those who outlaw it completely; those who make an exception; and those who are ambivalent and where it can be interpreted either way. It is roughly 33 per cent in each category. It seems to us that that differentiation is not going to be sustainable over a period of time, so it seems extremely unlikely that the monitoring process that is built into the OECD Convention is going to allow that situation to continue indefinitely, because of the competitive level and the alleged advantage which it gives certain companies. I think in a way, perhaps more crucially, what we are finding—and it relates to what I was saying five minutes ago—is that as leading companies begin to set a pattern on this, others are certainly going to follow. BP has announced a strategy of zero tolerance. Motorola in the US had a strategy of zero tolerance about seven or eight years ago and other companies are certainly going to follow that mould. It is obviously much easier for a very large company which has clout to do that and there are going to be exceptions. We see that as part of the process which is on going. The related and last point I would want to make on facilitation payments is that, as one finds in addressing the contents of a Bill such as this one, it is impossible in terms of domestic legislation to avoid defining facilitation payments as a bribe. So it is really only when you apply this to a payment overseas that you can say, "However in certain circumstances this will not apply up to a certain sum", so there is a strong element of double-think in that and as an organisation we are now definitely in favour of moving away from that exemption.

  Q32  Lord Waddington: But would it not be quite wrong to stigmatise as corrupt the payment, for instance, of a sum to a foreign official which is made by the payer in the belief that it is necessary to make that payment in order for the payer to get his legal rights? Would an ordinary person say that that was corrupt any more than they would say it was corrupt of me to say to a baggage handler who had emerged by a carrousel at London airport, "Here's a tenner. For God's sake go back behind the carrousel and try and extricate my bag which has not yet appeared." Nobody in his right mind would say that that is a corrupt thing. Why is it a corrupt payment therefore for somebody in a foreign country to pay money to an official because he knows perfectly well that he is not going to get his legal rights unless the payment is made? That is what worries me.

  Mr Carver: With respect, my Lord, I am not sure that I can share your analysis, even though you make it very emphatically, and I do so for two reasons. I have been struck over the last two or three years in discussing these problems with major companies how their own analysis of the way in which they conduct business around the world leads them inexorably to the conclusion that they have to eliminate the practice altogether and they have to make that part of the central thesis on which the company does its business, the elimination of facilitation payments altogether. That process puts me in mind of a long-established American client with which I have had various dealings over the years which has been international for much longer than I have been in practice, which had for many years a very, very well-established and elaborate compliance programme which went into this type of detail in every single respect so there was a procedure for dealing with these problems every single time they arose. Even though the maintenance of that compliance programme was one that involved expense, it had paid off time and time again to make sure that any problems weree exposed. The test in every case to my mind as to whether or not this is a corrupt payment or not is if it is exposed to the person's employer, is it a problem? The invariable answer is if it is a problem it is corrupt and should not be made at all—transparency.

  Chairman: Perhaps we could move on to two other topics. We ought to look at public interest defence and what the mechanisms are for investigating and pursuing bribery and corruption.

  Q33  Lord Campbell-Savours: Do you feel that the tracking of transfers of money through bank accounts is a principal investigative tool in large-scale bribery? Do you regard it as an important tool to use?

  Mr Carver: Yes. Recent high profile cases have demonstrated that this is an essential tool because many countries now place an enormous, particularly in the developed world, emphasis on the extent to which they feel that the established financial markets, and of course we are talking particularly about the United Kingdom, New York, Switzerland, have in effect stolen money belonging to them. We need devices to be able to deal with that accusation because it is not by any means always true; it just happens from time to time. Certainly the case of the Abacha funds which were laundered through Switzerland, through London and through other markets, the ability to track that has been absolutely essential. Whether or not it is going to produce enough evidence to convict all the people involved of the necessary offences still remains to be seen. In the case of Pakistan, for example, there is more than enough evidence that the previous Prime Minister had funds translated through financial centres, but that the process of completing prosecution is very difficult indeed. The availability of evidence is not going to come, to my mind, unless we have even more effective anti-money laundering techniques, money laundering analysis, the ability to capture laundered money, and to capture the tracing. It is perfectly possible to do because now electronic money always leaves a trace. The question is just what the requirement is on banks to do. They will, by and large, do exactly what they are obliged to do by law, and they will not do any more. It is very important that the law and regulations governing international banks are sufficiently clear.

  Q34  Lord Campbell-Savours: What about the investigative journalist, the whistleblower, and accountants generally, what do you think about their role in all this?

  Mr Carver: I have always had great difficulty with the notion of lawyers, which is the case that is often cited, being some sort of sacred group that should not be obliged to disclose, I do not accept that at all. It seems to me that where a lawyer has been engaged, either wittingly or unwittingly, in a process of secreting funds or hiding them—and it is usually the simple act of creating or giving instructions to some firm of lawyers in Panama or the British Virgin Islands to create a company which provides a nice anonymous vehicle for funds to be translated through—there is absolutely no excuse whatsoever why a lawyer or accountant or any other intermediary, whether governed by a professional code or not, should not disclose suspicious transactions. It seems to me a totally simple, straightforward case.

  Q35  Lord Campbell-Savours: Have you any information about the exemption of the intelligence services in clauses 15 and 16?

  Mr Carver: Personally, I see no justification for it whatsoever but I do not pretend to be an expert on the intelligence services. I find it disturbing to find it in this Bill but I see no basis and see no justification for this at all.

  Q36  Lord Waddington: I think some time ago you were calling for greater co-operation between the Serious Fraud Office, National Criminal Intelligence Service and the FSA. Has there been better co-operation in recent years?

  Mr Carver: I think the answer is yes there has been better co-operation. There have been strenuous attempts on their part to collaborate more effectively.

  Mr Rodmell: Perhaps it is worth adding, as I did mention earlier, that there does now seem to be a memorandum of understanding between these various agencies that says who does what, which must be an aid to greater co-operation. My impression talking to NCIS is that they are getting rather better at feedback on suspicious transactions but we have not really undertaken detailed research.

  Q37  Lord Waddington: But which should be the lead agency in tackling corruption?

  Mr Cockcroft: In our view it should be an expanded SFO. NCIS is obviously in the business of providing information, the Crown Prosecution Service has many different duties, and the individual police forces are unlikely to be credible in this area which is complex especially when there is an international dimension.

  Q38  Lord Waddington: What about this idea that it should not have to deal with cases involving less than £1 million?

  Mr Rodmell: We are talking there about serious corruption and putting it on a level with serious fraud so that basic criterion applies. Clearly if it is below £1 million, which I think is their criterion, there has to be a case for a less well-equipped, in terms of investigative powers, body to deal with it. But maybe one should be thinking about increasing the powers of whoever is going to deal with it, whether it is the Crown Prosecution Service, the police, or whoever, so that they can cope with it. But where there is an international dimension, even if you are dealing with quite a low level of bribery, I think the Serious Fraud Office would take on a fraud case for even less than £1 million if it was complex, particularly because of the overseas element. I think the same should apply to corruption. I personally think it is a nonsense that there is no express jurisdiction for the SFO to deal, not only with fraud, but with corruption and money laundering and other types of economic crime which typically are cross border and operate disregarding borders.

  Chairman: International obligations are obviously very important in this.

  Q39  Mr Garnier: I was just wondering whether you thought if this draft Bill becomes an Act whether the Part 12 bits of the 2001 Anti-Terrorism Act are suitably replaced by relevant parts of the draft Bill?

  Mr Rodmell: I tried to indicate earlier that I think the nature of this Bill would make it virtually impossible to operate in a situation of foreign bribery, which is what Part 12 deals with. I would hope that on a significantly redrafted Bill, that would be less of a problem, because it would make more sense to have all of those anti-corruption provisions in one Bill. But one way of dealing with that, again I hate to come back to specific offences, is to have a specific offence dealing with, for example, bribery of foreign public officials and it would be much clearer and easier even than under the 2001 Act. The way it is at the moment I do not think it will work.


 
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