In a very significant judgement on Friday 15th January, the Court of Appeal has ruled in favour of the Serious Fraud Office, finding that bribery of foreign officials was indeed illegal prior to 2002. The SFO had appealed a ruling by Judge Pegden in an ongoing case the SFO is prosecuting (the facts of the case remain in issue, and the case is subject to reporting restrictions) that the key piece of pre-Bribery Act legislation it relies on for older corruption allegations, the 1906 Prevention of Corruption Act, did not apply to foreign officials.
The ruling was described by the appeal judges as settling a “critically important” question and it certainly sets a very important record straight. After signing the 1999 OECD Anti-Bribery Convention, the UK government initially argued that the 1906 Prevention of Corruption Act was sufficient for UK compliance with that Convention. That Act however only applies where significant activity took place within the UK in relation to the alleged offending. There was little case law to back the UK’s position up and even less on what ‘significant’ activity in the UK constituted. The OECD were not convinced.
The UK responded by introducing an amendment via the Anti-Terrorism Crime and Security Act 2001 (that became effective 14th February 2002) making it clear that the 1906 Act and the UK’s other corruption statutes from 1889 and 1916 applied even where the person receiving a bribe is outside of the UK and has no connection to it. This put it beyond doubt that bribery of foreign officials was illegal from February 2002, but did not clarify the position prior to then. Ongoing pressure on the UK to develop modern anti-bribery legislation continued, leading to the introduction of the Bribery Act 2010 which came into force 1st July 2011.
The Court of Appeal ruling finally clarifies that the 1906 Prevention of Corruption Act unequivocally applies to foreign officials. Interestingly, the way the 1906 Prevention for Corruption Act is portrayed in the ruling, using quotes from historical material at the time, almost makes it sound like the original Foreign Corrupt Practices Act. It was introduced in 1906, for instance, as a result of “growing public concern that bribery and corruption in the private sector was rife”. Its purpose, according to a contemporary memorandum was “to check, by making them criminal, a large number of inequitable and illegal secret payments, all of which are dishonest, and tend to stifle confidence between man and man and to discourage honest trade and enterprise.” The judges ruled that in the context of the global trade that England was engaged in at the time, if Parliament had wanted to exclude foreign agents and principals, it would have done so.
Significance Of The Ruling
The judgement is significant because it means there is no limit to what historical corruption the SFO can now investigate. Any corruption that had some connection to the UK prior to 2002 is illegal. After 2002 it is illegal whether or not it has some connection to the UK. It is likely that the courts will still need to test what the definition of ‘connection to the UK’ is, but the issue of legality is settled. The SFO has plenty of cases in its workload that relate to allegations of overseas corruption prior to July 2011, for which it will need to use the 1906 Prevention of Corruption Act. It now has a free hand to determine how far back it can go in investigating and prosecuting such corruption.
The ruling also flatly contradicts claims made by the former Attorney General, Lord Goldsmith, that a prosecution of BAE for bribes paid in relation to the Al Yamamah government to government contract with Saudi Arabia, which was dropped by the SFO in 2006 on ‘national security’ grounds following government intervention, was virtually impossible. Lord Goldsmith claimed in an interview with the Financial Times in 31st January 2007 that most of the allegations against BAE related to activity pre-2002, and that even the SFO “accepted they wouldn’t prosecute in relation to pre-2002 because that’s when we changed the law”. This is the second Court of Appeal judgement in the last 3 years to throw doubt on Goldsmith’s claims. Goldsmith claimed, again in the FT and elsewhere, that the other insuperable obstacle to BAE being successfully prosecuted was that the company was claiming that “the payments they were making had been authorised at the highest level”. In 2013, the Court of Appeal ruled in another case ( ECWA Crim 2287) that the SFO was not required to prove that there was no knowledge or authorisation of a corrupt payment by the principal or employer of the agent receiving it. The court held this on the grounds that “a payment to an agent or employee cannot be authorised if it is made for the prohibited purpose.”
The ruling suggests that, as many of us suspected at the time, the issue with the UK’s old corruption legislation was not so much inadequacy of the law but a lack of real prosecutorial will to enforce it (although whether larger companies can be brought to justice under the Prevention of Corruption Act given the UK’s inadequate corporate liability laws – view Corruption Watch UK’s paper on corporate liability laws here – remains to be seen). Fifteen years on we have an SFO that is serious about prosecuting and is prepared to take test cases all the way to the Court of Appeal to lay the legal groundwork. This strategy is paying off – there is now certainty and clarity about the law. It may not be the kind of certainty that those within the private sector who have skeletons in their closet will welcome, but for those who have been urging the UK to get serious about prosecuting corruption for the last 15 years it is welcome news indeed.