The Organisation for Economic Co-operation and Development (OECD) is committed to tackling corruption of foreign public officials, and in 1997 the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was signed by OECD member countries. However, many signatories are not meeting their obligations, most notably the UK. This contrasts starkly with the US position. Under the Foreign Corrupt Practices Act (FCPA) the US Department of Justice (DoJ) has the jurisdiction to tackle overseas corruption by non-US companies often with only tenuous links to the US. According to Transparency International - the global anti-corruption non-governmental organisation - UK companies are less likely to bribe than US companies yet, unlike the US, our anti-corruption legislation is woefully underdeveloped and is well beyond its sell-by date. UK prosecuting authorities simply do not have the weaponry of the FCPA.
Many UK companies are more likely to face corruption charges from the DoJ than from the Serious Fraud Office (SFO). This is despite the fact that, according to a KPMG survey on overseas corruption, almost half (46%) of participating FTSE 350 companies who also conduct business in the US either consider they are not subject to the FCPA or do not know whether they are subject to it.
Time for change
With the OECD placing the spotlight on the UK and the growing focus of the DoJ to prosecute non-US companies, the inadequacy of our legislation has been exposed. It is widely accepted by the legal community and the government that the current regime is complex, outdated and in need of reform yet so far there has been no agreement on the nature of that reform. However, in November 2007 the Law Commission published proposals to reform existing bribery laws in a new consultation paper.
Currently the law governing bribery is made up of a patchwork of statutes and case law dating back to the 19th century. The Public Bodies Corrupt Practices Act 1889 generally imposes criminal liability for corruption of public officials outside central government. The Prevention of Corruption Act 1906 extended anti-bribery provisions to private sector agents (unlike the FCPA) and Crown agents. Additionally there is a common law offence of bribing a public official.
The only recent development was the enactment of the Anti-terrorism, Crime and Security Act 2001. Like the FCPA, this gives extra-territorial effect to anti-bribery legislation. Incredibly, the KPMG survey found that of the respondents who were aware that UK citizens and UK companies can be prosecuted for bribery abroad (81%), a third (31%) said that they had taken no action to communicate the 2001 Act to their employees.
We are increasingly being asked to advise clients on compliance programmes and on the legality of certain business practices both from a European as well as a US perspective. However, the key element of all three UK offences are not clearly defined, particularly the mental element; the legislation requires the prosecution to prove that a defendant has acted ‘corruptly’. Yet there is no satisfactory judicial definition of this concept and Parliament has failed to clarify this issue. Cooper v Slade [1858] helpfully defines ‘corruptly’ as “doing an act which the law forbids as tending to corrupt”. Lawyers, as a result, are not able to give their clients sufficient certainty as to what standards will be applied by the court.
As well as having poorly-defined terminology, prosecuting authorities are effectively operating under two regimes; one governing the public sector and another the private sector. Prosecutions must be made under the correct act: R v Natji [2002] is an excellent example of the unsatisfactory nature of the current system. The defendant was charged under the wrong act and the conviction was thrown out on appeal. If the Crown Prosecution Service, prosecuting counsel, the Attorney General and the trial judge had all failed to apply the anti-corruption legislation correctly, what prospects are there for anyone else?
Companies must seek to ensure compliance against a legal regime which is insufficiently clear for that to be commercially practicable. Despite this uncertainty, between 2001 and 2005 there were 46 successful bribery prosecutions.
Current proposals for reform
As well as satisfying the UK’s international obligations, it is essential for the legal profession to work with a well-defined offence containing clear explanations on the conduct and fault elements. The Law Commission’s proposals go a long way towards achieving this. While some of the detail should be the subject of debate during the upcoming consultation period, the legal profession should welcome the broad recommendations for reform.
The key recommendations include proposals to:
- abolish the current statutory and common law offences and abolish the distinction between public and private sector bribery in the domestic context;
- set out clearly the conduct and fault elements of the offence for both the payer and recipient of the bribe;
- create a separate offence of bribing a foreign public official;
- permit acceptable corporate hospitality and commission payments;
- create a bribery offence when committed abroad by a UK national or a UK resident that can be prosecuted in the UK; and
- provide that either the director of public prosecutions, the director of the SFO or the attorney general should give consent for prosecution (depending on the offence).
The Law Commission has summed up the key proposed offence as follows: “The offence would capture cases where someone offers an advantage to another person as a reward for breaching a trust orÉ duty to act impartially or in the best interests of a third party. The person receiving or soliciting the advantage would also be liable for prosecution.”
The recommendation is that a separate offence of bribing a foreign official would broadly mirror the FCPA but, unlike the US regime, there would be no exceptions for ‘facilitation payments’, which will still be considered to be a form of bribery in the UK. In addition, unlike the FCPA, the UK authorities would not be able to target corporates with only tenuous links to the UK. The Law Commission stopped short of recommending a new offence of inadequately supervising foreign subsidiary companies.
If the Law Commission proposals are translated into law then the UK’s corruption regime should, in many respects, surpass the FCPA as the global benchmark on acceptable business practice.
These proposals are to be welcomed. Any steps to improve the basic armoury available to UK prosecutors in dealing with corruption will ultimately benefit UK companies. As UK companies increasingly search for more business overseas, particularly in younger markets, it is vital that the government focuses on creating free and fair competition. Compliance with new bribery legislation should provide certainty and peace of mind to the boardrooms of many UK companies. The biggest question will be whether the UK prosecuting authorities have sufficient resources to actively harness the improved weaponry.
Jeremy Cole is a partner and Liam Naidoo an associate specialising in fraud litigation and investigations at Lovells.
