Beating the bribery

Wednesday, September 09, 2009

Derek Marshall, Director of Aerospace Defence and Homeland Security at SBAC, argues that both government and industry in the UK are now setting the pace in tackling bribery

At DSEi this year, I will have the pleasure of introducing a team of expert speakers from government, industry and the legal profession talking about the government's Bribery Bill and the UK aerospace and defence industry's efforts on anti-corruption. If you had asked me four years ago to set up such an event for DSEi I would have been surprised and have found little material and interest I suspect. It is a measure of the journey that industry and government have been on in the intervening years that it is no longer surprising to have a workshop on a business ethics topic at a UK industry event and, in fact, the calendar shows many such events throughout the year.

There can be no doubting the government's deter­mination to get tough on bribery. The Bribery Bill that was published in March was included in the Prime Minister's priority items listed in the policy document 'Building Britain's Future' that was issued in June. The policy document lists the following objectives for the bill:
• Providing a new, modern and comprehensive scheme of bribery offences enabling a more effective response to bribery in the public and private sector, at home and abroad;
• Enabling the courts to consider evidence from proceedings in Parliament in the event of a prosecution for bribery of a member of parliament or a peer;
• Creating an offence of bribery of foreign public officials in order to obtain or retain business;
• Creating a new corporate offence where a business fails to prevent bribery being committed by those working on its behalf;
• Guaranteeing that foreign nationals who are resident in the UK are liable to prosecution for bribery committed abroad in the same way that UK nationals are already liable; and
• Removing the existing requirement for the consent of the Attorney General to pursue a prosecution for bribery.

This must be seen as a radical overhaul of the existing law, both comprehensive in its scope and systematic in correcting any shortcomings identified by the Law Commission and other critics of the current regime. Government is clearly intent on introducing a new and more assertive approach to tackling bribery. At the time of writing, there are reports of a groundbreaking plea bargain between the Serious Fraud Office (SFO) and the bridge constructor Mabey Johnson. These indicate the government trying out new approaches to root out corruption in British industry.

The City of London Police's Overseas Anti-Corruption Unit has also successfully prosecuted an SME and obtained a conviction and a jail sentence for its finance director. This shows that action will be taken against companies at all levels of the supply chain and there is no concession for SMEs. For the UK associations, we are particularly concerned that smaller companies in our membership, who cannot afford to have full-time compliance officers and in-house training, should take reputational risk seriously. There are many examples now to show that the implications can be more serious for an SME than a major player, you could be betting the company's existence on reckless behaviour by an employee or an agent.

The government is particularly keen to change the impression that had earlier gained some credence that the UK does not go after bribery as rigorously as some other major countries, and to ensure that the UK is seen to be implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. There is no really convincing evidence that the UK is soft on bribery. Bribery has been contrary to the law in the UK at least since the time of the Magna Carta. But the law needs to be updated regularly. Jack Straw, the Justice Secretary, said in the introduction to the Bribery Bill: "The United Kingdom is recognised as one of the least corrupt countries in the world.

"We are proud of the high ethical standards we uphold in public and commercial life. But we must not rest on our laurels. Bribery is by its very nature insidious; if it is not kept in check it can have potentially devastating consequences."

Whilst he is undoubtedly right in claiming that the UK is one of the least corrupt countries in the world, the SFO decision in December 2006 to discontinue on grounds of national security its investigation of contracts under the 1985 Al Yamamah agreement allowed that impression of softness to be spread internationally, including criticism from the OECD itself, and the old and fragmented nature of the UK law on bribery has encouraged its spread. The case work may have been old, in a different era as far as public attitudes to business ethics are concerned, but the impact on the front pages of the newspapers was now, and the potential to present UK business in the wrong light damaging. In a highly competitive marketplace, industry cannot afford to be saddled with such negative publicity.

All of that has been changing, both from the government and the industry perspective. Apart from the cases mentioned above, the publication of the Bribery Bill has focused a lot of attention on the proposal to tighten the law in the UK and stimulated an interesting debate. A Joint Committee of the Commons and Lords has been actively interviewing witnesses in the process of pre-legislative scrutiny of the bill and should have reported by the time you are reading this article. The bill is expected to be put formally before parliament for approval early in the next session of parliament in the autumn, probably with only minor changes to the text issued in March.

Some commentators may be surprised to find that that the bill has attracted widespread support from the defence industry. It openly welcomed the Bribery Bill when it was published in March. Ian Godden, the Chief Executive of SBAC, said: "The aerospace and defence industry in the UK is leading the way in promoting the adoption of ethical business practices and we welcome today's announcement of a draft Bribery Bill…Defence employs over 300,000 people across the regions of the UK. We are committed to demonstrating how they work lawfully in our world-leading sector…"

Defence has a strong case to be considered a leader amongst industries in ethical matters. The UK industry set up a Business Ethics Forum, supported by both DMA and SBAC, in the summer of 2006 and it has been meeting regularly since, allowing companies to exchange best practice and hear the advice of government, lawyers and independent experts, such as the campaigning NGO, Transparency International. This has created a positive dynamic in the industry and spawned several helpful initiatives.

BAE Systems responded against a backdrop of criticisms of its practices around the time of the SFO's decision on Al Yamamah referred to above by commissioning the Woolf Committee to produce a systematic report on ethical standards in the company.

The report, published in May 2008, recognised that the defence sector had a legacy of reputational issues relating, in particular, to bribery and corruption, and recommended what many have seen as a blueprint for a major corporation to tackle these issues. It also addressed wider issues including recommending that the government come forward urgently with proposals to update UK law, which it has done.

BAE and other major European companies also decided to work together in producing a set of standards for ethical behaviour, which could be implemented at all levels of the supply chain. This was first agreed in 2007, through the industry's European trade association, Aerospace and Defence Industries Association of Europe (ASD), as the Common Industry Standards (CIS), which provide a firm base for companies to demonstrate their commitment to combating bribery. Both DMA and SBAC have committed themselves to encouraging UK companies to adopt the CIS. At time of writing, 116 UK companies have signed up to commit themselves to uphold the CIS principles. DMA and SBAC are due to merge on 1st October 2009 and intend to give a further boost to efforts to sign up the UK industry as a merged entity.

Europe and the US identified a common interest in this area when chief executives from both sides of the Atlantic met at the Farnborough Air Show in 2008 under the aegis of ASD and the American Aerospace Industries Association (AIA). Since then, experts have worked together effectively to develop a set of global ethical principles, which it is hoped to launch before the end of the year. These will be entirely consistent with the CIS.

If the Bribery Bill becomes law in 2010, the existence of the CIS as framework for companies to show they are tackling bribery effectively could be vital. Why? Because the new law will make companies responsible for bribery committed by their employees, agents or subsidiaries. Companies guilty of 'negligent failure to prevent bribery' could face heavy fines and jail sentences. A defence is available if the company has 'adequate procedures' designed to prevent bribery.

What are 'adequate procedures'? There is an interesting precedent from the area of financial regulation where the Financial Services Authority requires companies to have adequate systems and controls in place to prevent bribery. In January 2009, the FSA imposed a £5.25m fine on Aon Limited and gave a clear signal that there must be real evidence that the company is actively addressing anti-bribery.

For the new bill, if it becomes law, then ultimately the courts will decide on 'adequate procedures' but the CIS gives very clear guidance on what companies should do to combat bribery. DMA and SBAC have taken this further and provided a booklet that sets this guidance in plain language especially designed for smaller companies. A major part of our effort in presenting this subject at DSEi has been to update and improve that booklet so that we can distribute it to interested parties at the exhibition.

As many commentators have noted, tackling bribery is a matter for constant activity not a one-off effort. Government and industry in the UK have recognised this and over the last three years the awareness of the issue and the action in response to it has increased dramatically. There can be no complacency in industry on this issue. The passing of the new Bribery Bill into law is likely to lead to more high-profile cases and, no doubt, some more adverse publicity for industry. But there is a clear determination on all sides in the UK to tackle bribery wherever it occurs and the UK can fairly claim in the forefront of global efforts to combat corruption. I hope our presentation at DSEi will bear that out.