Canada: Directors fiduciary duty in a pandemic: You need a protocol!
COVID-19 has had and will continue to have impacts on virtually every corporation in Canada and globally.
On March 14, 2019, the House of Lords Select Committee on the Bribery Act 2010 (the Committee) published its Post-Legislative Scrutiny Report (the Report). While concluding that the Bribery Act (the Act) is an “excellent piece of legislation” and “an example to other countries”,1 the Report also sets out thirty-five recommendations and conclusions around the implementation and enforcement of the Act. In particular, the Committee was asked to focus on whether the Act has led to an increased prosecution of corrupt conduct under section 1 and 2 of the Act; whether UK businesses have been put at a competitive disadvantage in obtaining foreign contracts; and whether small and medium enterprises (SMEs) are sufficiently aware of the provisions of the Act. The Committee also investigated the use of Deferred Prosecution Agreements (DPAs) in preventing and investigating corrupt conduct by companies.
On May 13, 2019, the UK Government (the Government) published its response to the Committee’s Report, which is analysed below.
According to the statistics cited in the Report, despite an overall increase in the rate of convictions under sections 1 and 2 of the Act (the offences of bribery and being bribed, respectively), the number of convictions under these offences remains relatively low. As analysed in one of our previous blogposts, this is reflected by
In its response, the Government stated that prosecution agencies are already aware of the need to progress cases without delay and that the Crown Prosecution Service (CPS) has established a Specialist Fraud Division (the Division) for the most serious and complex economic crime cases. Recent reforms in the Division include the introduction of two allocated CPS prosecutors and a Senior Specialist Prosecutor for each bribery case, and a monthly review of all pre-charge cases. In respect of the Serious Fraud Office (SFO), the Government noted that its latest business plan prioritizes the need to make bribery investigations quicker and more effective. Technology is also a major focus for the SFO, particularly the use of Artificial Intelligence, predictive analysis and a new document and case management system.
The Government did not comment extensively on the use of misconduct in public office to prosecute bribery cases. It stated that prosecutors act independently and it is their role to ensure the right person is charged for the right offence. The Government highlighted that where the SFO investigates and prosecutes, it would normally do so under the Act; however, it also argued that “applying alternative legislation has resulted in many successful prosecutions”.2
No substantive action has been taken in regards to recommendations on anti-bribery training. The Government argued that “there is not enough evidence to commit to providing the resources for the City of London Police’s Economic Crime Academy to expand its anti-bribery training programme and for every police force to have at least one senior specialist officer undertake the training.”3
The Government rejected the Committee’s recommendation to amend subsections (3) to (7) of the Act, according to which prosecutions can only be initiated with the written consent of one of the Directors. The Committee argued that this requirement is too rigid and that it should allow Directors to delegate the power to initiate proceedings to officials, as they see fit. In the view of the Government, the current procedure is “proportionate and necessary”4 and, because of the low number of bribery cases, there is not enough evidence suggesting that the current requirements are impeding investigations.
The Committee did not make a recommendation for a change in the law of corporate vicarious liability. The Call for Evidence on Corporate Criminal Liability for Economic Crime (Call for Evidence) published by the Ministry of Justice (MoJ), which closed in March 2017, explored in detail the question of holding large modern companies accountable for offences committed by their employees and agents. The Government noted that the MoJ will respond to the Call for Evidence shortly.
The Government’s Anti-Corruption Strategy is in line with the Committee’s recommendation to strengthen the support on corruption issues available to companies in the countries to which they export, as well as UK Embassies. Such support is currently translated into guidance on how to report offences and promoting standards of trade integrity, but other options are tested in pilot locations, including Kenya, Mexico and Pakistan, by the Business Integrity Initiative funded by the Department for International Development. However, from the Government’s response, it is not clear whether there will be local support to companies to deal with bribery issues.
In addition, the Government strongly supported the Committee’s recommendation to not changing the law in relation to facilitation payments, which it considers a form of bribery and should thus not be legalised.
The UK’s decision of leaving the European Union (EU) has raised concerns also in terms of continuing the fight against international bribery, and keeping norms in place to ensure that measures with equivalent effect to EU mechanisms for investigation and enforcement are in force.
The Government observed that the Withdrawal Agreement reached with the EU would provide for an implementation period, during which it would continue to use the EU security tools it uses now. However, in the case of a no-deal scenario, the Government would move law-enforcement cooperation with EU Member States to “alternative, non-EU mechanisms”,5 meaning an increased use of Interpol, Council of Europe Conventions and bilateral channels on a contingency basis.
As regards DPAs, the Committee concluded that, despite initial concerns, they are a largely effective tool in encouraging companies to self-report and that, when used appropriately are not “an easy way out”.6 The Committee also emphasised that DPAs are not and cannot be an alternative measure for the prosecution of individuals involved in corrupt conduct, a view which the Government supported in its response.
The Government has no plans to amend the law related to DPAs, as opposed to the Committee’s recommendation to amend schedule 17 to the Crime and Courts Act 2013 to give the court greater discretion in managing the preliminary and final hearings in whatever way seems most appropriate. The Government argued that the justification for making this amendment is based on two case examples only (the Tesco and Rolls Royce case) and that it will consider this change when further evidence is received.
The Government also mentioned that the SFO will shortly publish a self-reporting guidance for corporates, setting out which factors will be considered as indicating full and genuine cooperation before it considers inviting a company to begin DPA negotiations. This includes an assessment by the prosecutor on whether the company has provided “genuinely proactive” assistance which goes “above and beyond what the law requires”7; whether it identified suspected misconduct together with the people responsible, regardless of their seniority; and whether it provided all available evidence that might implicate any individuals. This was in response to the Committee’s recommendation that a company must include provisions of all available evidence which might implicate any individuals, however senior, when negotiating a DPA.
The Government stated that one of its main policy objectives is to support businesses to apply appropriate standards of ethical business conduct, with a specific goal of combating the use of bribery in high value transactions in international markets and, in particular, in large scale public procurement where only the largest businesses operate. In this regard, the Government specified that whilst the legislation would ultimately apply to all companies falling within scope of the definition of the offence, SMEs were not envisaged to fall within the main focus of enforcement activity.
However, the Government expressed its commitment to work with business representative bodies to raise SMEs’ awareness on bribery, compliance with the Bribery Act and the guidance to Chambers of Commerce and trade associations. The Government also agreed with the Committee that SMEs should not have any special statutory exemptions.
The Government briefly touched on the discussion around adequate and reasonable procedures, which was analysed in the Committee’s Report. The Committee considered whether the “adequate procedures” defence under the Act is a higher bar for companies to meet than the “reasonable procedures” to prevent tax evasion defence under the Criminal Finances Act 2017. The Committee took into consideration views expressed by some practitioners that procedures could not be considered adequate where bribery has occurred and concluded that it should be made clear that “‘adequate’ does not mean, and is not intended to mean, anything more stringent than ‘reasonable in all the circumstances’”8 and that this should be reflected in the MoJ’s Guidance on Adequate Procedures. The Government noted that the Act and the Criminal Finances Act 2017 are two separate pieces of legislation which involve offences for different forms of economic crime. Therefore, any change in the statutory Guidance will need to be “carefully considered”. The Government also added that there have been “no reported problems with interpretation”9 to date, and that, should this position change, it will examine this issue.
The Government did not consider itself best placed to provide more detailed clarification on what might constitute acceptable corporate hospitality. The Government noted that the Act was never intended to prohibit reasonable and proportionate hospitality or other similar business expenditure, and that the MoJ Guidance to Help Commercial Organisations Prevent Bribery (MoJ Guidance), as well as other professional organisations such as Transparency International, are more suited to provide sector specific guidance.
The Government also did not provide examples or suggested procedures that would provide a good defence for the purposes of the failure of commercial organisations to prevent offences contained in section 7. However, it stated its commitment to improve awareness of the MoJ Guidance with SMEs.
Finally, the Government continues to warmly support the use of DPAs notwithstanding the recent inconsistencies between the Tesco and Rolls-Royce DPAs and the SFO’s failure to successfully prosecute any individuals involved in corrupt conduct. The Government concluded that DPAs are a useful tool to incentivise self-reporting and cooperation with investigations, despite the low number of self-reported cases under investigation by the SFO to support this statement. It will be interesting to see the outcome of the SFO’s self-reporting guidance for corporates to determine what levels of cooperation will be required in the future to negotiate a DPA.
COVID-19 has had and will continue to have impacts on virtually every corporation in Canada and globally.
As business resumes in the workplace and circumstances change, American companies must be ready.