A little over seven years since the Bribery Act 2010 came into force, a House of Lords select committee chaired by Lord Saville, who conducted the Bloody Sunday Inquiry, is gauging its effectiveness. The committee received written evidence over the summer before asking judges, policemen, NGOs, lawyers, academics and business people for comment. What has it uncovered so far?

The effect of the Act

The Act has undoubtedly had a significant effect. It was the first piece of legislation in the UK to follow the ‘failure to prevent’ model, criminalising companies for failing to prevent their associates from paying out bribes. Companies can only defend themselves from this charge by having in place “adequate procedures designed to prevent associated persons paying bribes.”

In its short life, prosecutors have used the Bribery Act in 13 cases, either to prosecute suspects or to reach deferred prosecution agreements. A deferred prosecution agreement occurs when a criminal case begins but is then suspended when a judge approves a settlement that includes a financial penalty and other sanctions against a company. The Crown Prosecution Service carried out the earliest prosecutions under the Act, drawing on entirely domestic evidence from police investigations. The cases involved people who either accepted or offered bribes.

It took the Serious Fraud Office some time to dispose of its first case under the Act, but this was to be expected. It takes a considerable length of time to discover, investigate (particularly when assistance is required from overseas) and prosecute a substantial economic criminal case. The SFO has now used the Act in four cases against companies. Three of those ended in deferred prosecution agreements and one in a plea of guilty after an unsuccessful attempt by the company to persuade the SFO to sign a deferred prosecution agreement. The most significant disposal (albeit only partially for conduct criminalised by the Act) was that of Rolls Royce, which had to pay £497.25 million plus interest and costs – a penalty to rival the sort imposed in cases prosecuted by the US Department of Justice.

These cases represent a respectable haul so far. It is possible, however, that the Bribery Act's greatest success lies in the way it has compelled companies to identify and assess risks properly and take preventative measures to offset them.

Are all companies equally aware of their obligations?

Large multi-national companies are certainly aware of the reach of the Act and of the guidelines that the Ministry of Justice has issued about the adequacy of procedures. The vast majority understand the risks that they are running and have designed and followed procedures to prevent bribery.

Small and medium-sized enterprises are less likely to have understood the scope of the Act or the liabilities it poses for them. A Government study in 2015 questioned some of them and found that one-third had not heard of the Act and were unaware of the offence of failing to prevent bribery. A substantial number of the ones that had had never heard of the Act exported goods and services to the Middle East, Asia, Africa and South and Central America – all comparatively risky parts of the world.

Of those that knew about the Act, just under three-quarters did not know about the Ministry of Justice’s guidelines for adequate procedures. Only one-quarter of the firms that knew about the Act had sought any professional advice about its scope and the procedures that they should have been following.

In short, there are clearly many SMEs which conduct highly risky business but are either are unaware of the risks involved or are unaware of the steps they should be taking to afford themselves a defence. Many have not taken advice about the Act and the guidelines.

Adequate, reasonable, or neither?

Among other things, their Lordships are examining the concept of “adequate procedures.” They have looked at the likelihood of a jury concluding that a firm's procedures were adequate, even though they failed to prevent bribery, and the likelihood of the opposite happening, with the jury concluding that no procedure that fails once can be regarded as adequate. No information from any decided case points in either direction so far. The question of whether a procedure is adequate has only surfaced in one contested case: the prosecution by the CPS of a dormant company with no assets. This resulted in an absolute discharge and will therefore not be considered by the appellate courts.

Since 2010, the Government has followed the same ‘failure to prevent’ model in only one other case, when framing the offence of failing to prevent the facilitation of tax evasion in the Criminal Finances Act 2017. This Act offers a defence of “reasonable procedures” rather than “adequate procedures.” The select committee is trying to decide whether the former is preferable to the latter in the case of bribery. The idea of reasonableness is far more familiar to the criminal law than the idea of adequacy and juries are likely to find it far easier to understand. It is perhaps telling that senior law enforcers have told the committee that they favour the status quo, purely because it makes it easier for prosecutors to convince courts to convict.

The committee has also thought about the UK adopting something similar to the US model of criminal liability for companies, which works on the principle of vicarious liability, where someone is held responsible for someone else's actions. In US law, companies are criminally liable for the crimes that their employees commit in the course of their employment, if they do so at least partially for the benefit of those companies. The problem with anything approaching this type of liability is that it allows prosecutors to exercise great discretion; if a company has no defence when its employee or agent pays a bribe, it is the prosecutor who decides whether it is to be punished when he decides whether or not to prosecute. For serious criminal conduct, this is not an attractive approach.

Extension of failure to prevent – in the public interest?

One of the main attractions of the ‘failure to prevent’ model is that it sidesteps the trouble that prosecutors face when prosecuting companies under English law. For every economic crime that does not follow that model, prosecutors have to prove that a senior manager, such as a board member, committed a crime in order to prosecute his company.

Many law enforcers want the Government to introduce a general offence of failure to prevent economic crime because it would make it far easier for them to prosecute companies. Others do not share their opinion. As well as the potential unfairness of criminalising a company for failing to prevent conduct of which it is a victim, this would also beg the question of where the public interest lies. After the financial crisis began in 2008, the public clamour was not for more prosecutions of companies (with the burden of financial penalties falling on the shareholders) but for the holding of senior individuals to account. In financial services, the introduction of the Senior Managers' Regime goes some way towards satisfying this aim.

However, to hold directors to account in criminal cases, prosecutors need evidence. They might obtain that evidence through the co-operation of defendants (culpable parties being offered reduced sentences in return for evidence against their former colleagues) or by financial incentives for whistle-blowers to come forward to do the same. Both options might be unpalatable, but perhaps they are a price worth paying.

Window-dressing and the criminal law

British governments generally pass criminal legislation to give the public the impression that they are doing something about a problem instead of actually taking effective action. This is the case with the corporate bribery offence. Starting in 2002, the Government could have allocated more resources to prosecutors to tackle corporate bribery by the simple means of using the UK’s money-laundering legislation in place of a corporate bribery offence, as bribery has always been a crime and the Proceeds of Crime Act criminalises almost any activity that involves money that could be the proceeds of crime. In a very real sense, the ‘failure to prevent’ offence is mere window-dressing.

* Neil Swift can be reached on +44 (0)20 7822 7763 or at nswift@petersandpeters.com