Corruption Laws to be Revised Again

In February 2002 significant changes were made to the UK legislation dealing with corruption. In particular, it became an offence in the UK to be concerned with corruption overseas. In March this year, the government published draft legislation intended to replace the existing legislation, some of which dates back to the 19th Century. A Parliamentary Committee has been scrutinising the draft Bill and taking evidence from business organisations and others. Many have expressed concern that the proposed legislation will not be readily understood by businesses and it will not be possible for them to determine what is lawful and what is not. Notwithstanding these criticisms, the government seems intent on proceeding with the proposals.

The principal legislation dealing with corruption dates from 1889 and 1906. It has been criticised for many years as being inadequate. The Law Commission of England and Wales undertook a review of the law and published a report in 1998 calling upon the government to repeal the old anti-corruption laws and introduce a comprehensive new regime. The report concluded that the law as it then stood was "obscure, complex, inconsistent and insufficiently comprehensive". Despite that criticism, many businesses have felt able to produce internal codes of conduct that provide guidance to staff as to what is not acceptable and how to avoid running foul of the law. A greater impetus to put in place effective guidance for staff came with the Anti-terrorism, Crime and Security Act 2001 which extended the jurisdiction of the courts in England, Wales and Northern Ireland to deal with acts of UK companies and UK nationals amounting to corruption overseas.

One of the principal complaints of the Law Commission was that the legislation criminalised payments made "corruptly", but did not define what "corruptly" meant. When dealing with prosecutions brought under the legislation, the courts had some difficulty with determining what had to be proved before a payment could be said to have been "corruptly" made. Corruptly does not have the same meaning as ‘dishonestly’. Some of the definitions applied by the courts seemed to be circular. The law criminalised any act which the law forbids as tending to corrupt. The simple position is that the courts believe that "corruptly" is an ordinary word the meaning of which should cause a jury little difficulty. That is one of the functions which juries sometimes have to perform, to decide what is right and what is wrong. The proposed legislation changes that by attempting to define corruption.

Another criticism of the old legislation is that in certain respects it deals with corruption in the public sphere differently from corruption in private transactions. That has lead to unnecessary complications and, in one recent case, an accused being acquitted because he was charged under the wrong statute.

The Law Commission suggested a form of legislation which would replace the old statutes and the common law offence of corruption. The government has largely adopted the formula proposed by the Law Commission.

The approach adopted by the Law Commission and now reflected in the Bill is to make all embracing offences of making (or offering or agreeing to make) or receiving (or soliciting or agreeing to receive) corrupt payments or advantages, but then providing a specific number of exceptions to permit activity which would not normally be regarded as criminal. This is because the scope of the broadly defined offences includes certain commercial activity such as the making of payments to secure superior services which would otherwise be criminalised even if made with the knowledge and consent of both principals. The structure of the legislation revolves around the concept of agency but it extends to both the public sector (where a public official is regarded as an agent of the public) and to the private sector (where, for example, an employee is an agent of his employing company).

The definition of the term "corruptly" is centred on the concept of agency. A person who offers an advantage to an agent (or to a third party) does so corruptly if:

• he intends the agent to do something (or omit to do something) in performing his function as an agent; and

• he believes that if the agent did so it would be primarily in return for the advantage offered.

Without the exceptions this definition of corruption would mean that proper payment for services or reimbursement of expenses might fall foul of the legislation. The exceptions, however, are set out in terms that are regarded by some commentators who have given evidence to the Parliamentary Committee as being convoluted and difficult to follow. It has also been suggested that they might not always have the desired effect. The principal objection is that ordinary business executives are unlikely to be able to interpret the legislation without the help of lawyers and, even then, it might not be clear what activities are allowed or prohibited and give rise to the commission of criminal offences.

The first exception deals with the position where a person is involved in the legitimate payment (e.g. of salary or reimbursement of expenses) to an agent on behalf of the agent’s principal. The far from straightforward wording of the exception is set out in the box on this page. The second exception covers the situation where both principals, acting with full knowledge of the facts, agree that the agent may receive the advantage which would otherwise be corrupt. This second exception only applies to transactions in the private sector on the basis that no-one can consent to a breach of duty performed for the public.

The new legislation retains the extra territorial jurisdiction of the courts in England, Wales and Northern Ireland introduced by the Anti-terrorism, Crime and Security Act 2001 which provides that UK nationals (whether companies or individuals) can be prosecuted for acts of corruption committed abroad, if those acts would have constituted an offence if carried out in the UK. The law or custom of the country in which the acts took place is not relevant. The offences extend to bribing overseas public officials.

As with the previous law, no exception has been made for small "facilitation payments". A payment of a few dollars to persuade an official to perform his duty (e.g. to release goods from Customs or to install a telephone) is made corruptly in accordance with the new definition and does not fall within the exceptions. Nevertheless, in giving evidence to the Parliamentary Committee Lord Falconer QC (the then Minister for State for Criminal Justice, Sentencing and Law Reform) said that small facilitation payments extracted by foreign officials in countries where this is normal practice would not themselves give rise to a prosecution in the UK. Whether businesses would feel content to rely upon such a statement is uncertain when the government has made clear that the making of such a payment does amount to a criminal offence, even if it is unlikely to be the subject mater of a criminal prosecution.

The government has indicated that the draft legislation is intended to codify the existing law rather than make fundamental changes to it. On the other hand, the Director of the Serious Fraud Office and the Director of Public Prosecutions have both expressed the view when giving evidence to the Parliamentary Committee that the new legislation should make it easier for corruption to be prosecuted. The critics of the proposals say that the legislation introduces uncertainties and that it is not readily comprehensible to non-lawyers.

On a practical level, companies which have introduced detailed codes of conduct and guidance for staff have realised that it is not necessarily the primary legislation which causes uncertainties in providing a safe framework for doing business with overseas agents who may themselves be inclined to pay bribes to officials in their own countries. Instead it is the law of conspiracy and aiding and abetting which presents the uncertainties and requires explanation by lawyers. The new legislation does nothing to clarify the dilemmas that arise in practice.

Where companies have put in place comprehensive codes of conduct and guidance for staff, the new legislation, as currently drafted, may only require review rather than an expectation of any substantive changes in practice. Where such codes and guidance are not yet in place, they will be essential to assist employees to avoid unwittingly falling foul of the law and to enable a company to show that it took appropriate steps to minimise the risk of corruption. Such business ethics compliance programmes should encompass:

• a clear statement of the corporate ethics policy (dealing with, for example, gifts and hospitality);

• examples of transactions likely to give rise to potential exposure (dealing with, for example, issues connected with the appointment of representatives and supervision of joint venture operations);

• the requirement that books and records must properly reflect transactions such as commission payments and the need to keep an audit trial as to how decisions on key matters are reached and business decisions justified;

• an explanation of the criminal implications of the law for the company and for the individual employees;

• the consequences for individuals of breach of the code including disciplinary action;

• the provision of proper reporting structure for staff to refer concerns and problems to a higher level of management; and

• demonstrable leadership from top management showing a commitment to the ethics programme.

The Parliamentary Committee is due to present its report sometime during July. It is possible that changes will be recommended to deal with concerns raised by, for example, the Association of British Insurers that the legislation will outlaw legitimate commission payments in the financial services field. Substantive changes would seem unlikely where some of the government witnesses before the committee have emphasised that the proposed form of legislation has been in the public arena since the publication of the Law Commission Report in 1998 and the government’s position has been clear since the publication of its paper Raising "Standards and Upholding Integrity: The Prevention of Corruption" in June 2000. Watch this space!

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