bribery and the criminal justice system

In previous sessions we have looked at types of crime (rape and organised crime) for which it was taken for granted that the criminal law should be enforced but where pressures have led, rightly or wrongly, to changes to the criminal law and criminal procedure which have the aim of bringing various types of 'powerful offenders' to justice. The cases we looked at so far are those of rape and organised crime.

In the next three sessions we are going to add another dimension: the fact that forms of behaviour which are criminalised can also be viewed from other perspectives which either deny or put into the background their criminality in favour of other aspects of the situation in which they occur. This week we shall look at a recent example from the UK in which what seemed to be criminal activity was allowed to continue because it was seen, by the British government, as vital to national security.  The activity itself (either deserving of criminal prosecution or vital to national security, depending how you view it) was conducted by a very powerful organisation - a leading commercial corporation

So we also add to our list of 'powerful offenders' capable of putting up considerable obstacles to the criminal justice system, the commercial enterprise, in particular large enterprises with a global reach and who play a key part in the national economy.

First, we need to familiarise ourselves with the main features of what is known as corporate crime. The study of corporate or business crime is a fairly specialised area of criminology because it may require familiarity with aspects of economics and finance, business law and accountancy.  Nevertheless we can quite easily summarise the main forms of corporate crime

A quick introduction to corporate crime

The Australian criminologist John Braithwaite defined corporate crime as "the conduct of a corporation or employees acting on behalf of a corporation, which is proscribed and punishable by law."  The diagram on the right illustrates the environment in which the commercial enterprise operates. In the latter we include any commercial concern from a company manufacturing products or providing services to a bank or other financial institution.

Criminal offenders usually find their targets from their immediate environment. Street thieves and burglars find targets in the streets and communities around them. Professional criminals may go further afield.

If the commercial enterprise is going to commit an offence then the victim will most likely be from among the people and institutions which make up the environment of the company - those  people and institutions with whom it necessarily interacts in the course of normal business activity - and the motives for criminal action will be found amongst the interests which the company has regarding these institutions and individuals in the normal course of business activity. These are fairly easy to list. Firstly, there are the competitors providing the same product and with an interest in take customers away from the company by providing - or at least appearing to provide - a better product or cheaper price. Then there is the state which levies taxes on the company but also may assist it by providing subsidies or infrastructural facilities such as road and rail networks. The state is also, through its criminal justice agencies, in a position to regulate and enforce relations between the company and the other entities which make up its environment. The investors who provide large amounts of finance for the company and who demand a return on their investments out of company profits, may be individuals but also themselves large commercial concerns such as banks, building societies and other companies. Then there are the company employees. Wages are a cost and most companies will have an interest in keeping them as low as possible. But they will also have other legal responsibilities to their employees such as Health and Safety, a 'duty of care' and material benefits such as pensions and sickness payments. Customers are obviously crucial and while there is considerable 'brand loyalty' to certain products or companies, a basic fact of life in competitive capitalism is winning customers away from rival producers of the same product. Finally, there is the physical environment. This particularly concerns companies whose manufacturing proceses produce waste products. With growing awareness of global warming the relation between the company and its physical environment has become an increasingly important area of media scrutiny as well as state regulation. So these are the potential targets of corporate crime with regard to the definition from John Braithwaite noted above. We can now give a few examples of these various types of corporate crime before moving on to our case study of bribery. These are summarised in the table below

Obviously the table above is rather like the chapter headings for a large textbook on corporate crime.  We can note that the obstacles to the criminalisation of many corporate offenders are twofold. Firstly, some of the criminal offences are very difficult to detect and gather evidence about. The evidence of tax evasion or the over-pricing of contracts may lie deep in the financial accounts and bank statements of a large corporation. It may require the combined evidence of specialist police officers, forensic accountants and commercial lawyers to gather sufficient evidence to mount a criminal prosecution with a chance of proving beyond reasonable doubt the criminality of the offender. In the UK large commercial frauds are handled by a specialist investigatory body known as the Serious Fraud Office which has access to this type of expertise. In the US such investigations are conducted by the Securities and Exchange Commission Governments in the UK have argued for decades about how to strengthen the criminal justice system to deal with such offences. A major emphasis has been the attempt to dispense with the jury system on the grounds that 'ordinary people' on juries cannot understand many of the complexities of corporate finance. The argument in favour of retention of the jury has been that at the end of the day what the prosecution has to prove beyond reasonable doubt is that someone acted illegally. Having to convince a jury of ordinary people is a good check on a sloppy prosecution case! A judge sitting alone without a jury may become 'battle weary' having hear similar arguments so many times before and thus be insufficiently critical of the prosecution case

A second resource at the disposal of large corporations is often their ability to reframe the incident away from any notion of 'crime' towards alternative ways of looking at what happened such as 'accident'.  Thus one of the largest environmental crimes of the twentieth century remains undoubtedly the leaking of poisonous gas from a faulty storage container at the Union Carbide chemical plant in Bhopal India in 1984. The initial response of the Indian government was to charge the US head of Union Carbide (an American corporation) with criminal negligence and manslaughter. He was rapidly released. The company meanwhile used its considerable leaverage in the media to 'redefine' what had happened as a 'disaster' and 'terrible accident' and use other diversionary tactics such as suspecting 'sabotage' by various Indian radical groups

Finally, and this will be our main example, below the activity undertaken by the corporation might be considered by another very powerful organisation - the state - as of sufficient national importance (e.g. "vital to our national security interests") that it is considered legitimate to overlook its criminal aspects.

But, before moving on to our main example, there is one other element we need to consider, Namely the fact that not all crimes are of the same status.

varieties of crime

This issue might be summed up in the phrase "there are crimes and then there are crimes" That is to say not all acts which violate the criminal law necessarily carry the same connotations of evil and wrong doing. Students of the English and similar systems of jurisprudence and criminal law will be familiar with the distinction between mala in se and mala prohibita. These Latin terms may be roughly translated as 'wrong in itself' and 'wrong because prohibited'. Thus mala in se refers to crimes such as murder or theft which are considered wrong in themselves. The reason they are against the criminal law is because they are morally evil. A criminal law which failed to criminalise such acts would be incoherent and itself degenerate. Mala prohibita, by contrast, refers to acts which are wrong simply because they violate the criminal law. Exceeding the speed limit on a motorway is an example. You can be pulled up by the traffic police and issued with a speeding ticket or prosecuted in a criminal court. The judge will no doubt tell you that driving at such a speed is dangerous not just to yourself but to others around you. But you have not actually harmed anyone. It is the speed violation which is the crime. Parliament passed this law for good reason, to reduce accidents on motorways. But some libertarians - who own fast cars - might argue you should be able to drive at what speed you like. Fast driving is not obviously  wrong as such in the way that murder is. Another example might be smoking or dealing in cannabis. This is against the criminal law and a great deal of police time and resources are devoted to tracking down and arresting the dealers of cannabis and other illegal drugs. But again, libertarians may argue that the state has no business interfering with your right to take drugs. Others might argue the whole issue should be a matter of health policy rather than criminal justice. Most of you will be familiar with these arguments.

Now when we get into the area of business crime - crimes committed by members of commercial corporations acting in their capacities then we - come into a field in which there are many forms of mala prohibita. They include Health and Safety laws, environmental protection laws against dumping toxic waste products in the environment in excess of government degreed norms. In finance and banking, for example, there is a criminal offence known as Insider Trading. It involves the use of priviledged access to knowledge about company performance, before it is known to the general investing public, to sell or buy shares before their price changes to reflect that knowledge.  This practice only became a crime in 1980 before which it was not a crime at all and access to inside information was simply one of the 'perks' that went with a job in key City of London financial institutions. It was made a criminal offence because it was felt that with the expansion of financial dealing actions taken on the basis of such inside information may have a distorting effect on the working of the market in stocks and shares. In other words Insider Trading is a regulatory offence: it is criminalised in order to minimise its occurrence rather than any notion that it is wrong in the sense that theft or fraud are wrong

Another example concerns the bribery of (or paying of 'commissions' to) customers by a company in order to secure the sale of its products. It might be thought that this is not intrinsically criminal. If paying 'under the counter' helps to increase sales why should it be a crime?  The government may decide to pass legislation prohibiting such activities as insider trading or paying commissions not because they are somehow intrinsically wrong but because they impede the smooth functioning of business and markets. In this case the criminal law and criminal justice system is being used as a form of regulation in the interests of efficiency rather than morality as would be the case with murder or theft. That is why the former are sometimes known as regulatory offences.

Finally, after this extended introduction, we can move to our main example: bribery. The example we shall focus on is the alleged paying of bribes to Saudi Arabian officials by a major British armaments company, British Aerospace Systems (BAE Systems) to secure a contract for aircraft sales and the circumstances in which the government allegedly pressured a criminal investigation to stop because it was contrary to the interests of national security. The main reading for this is Tim Webb's pamplet 'Bribing for Britain' Before going any further it should be made absolutely clear that British Aerospace systems has from the outset denied any wrongdoing in the matter. BAE is, incidently, the fourth largest arms producer in the world and Britain's only arms manufacturer.

the pressure to sell

Some types of businesses are more exposed to the temptation to pay bribes than others. Where the marketing of a product depends upon government approval and licensing, as with medical drugs then there may be some unscrupulous companies which may attempt to bribe government scientists to falsify or ignore negative results in the testing laboritories. John Braithwaite in his, still famous, study Corporate Crime in the Pharmaceutic Industry, found many examples regarding the drug Thalidomide which was eventually marketed with such disastrous results

There are other industries where the nature of the produce or service being sold dictates that either a large number of products will be sold or none at all. The aircraft industry is one such example. No airline wants a fleet of about six or seven different types of aircraft - a few Boeing 747s here, a few Airbuses there etc. Spares would have to be kept for  different aircraft, separate training for mechanics and pilots working  with the  different aircraft would have to be  maintained. All this would  increase  costs. Far better to decide between the competing aircraft manufacturers and equip your whole fleet with  one type. Then you are carrying one system of spares, maintenance, pilot and mechanic training. So from the standpoint of the competiting aircraft manufacturers, keeping customers 'sweet' so that when the time to renew their fleet of aircraft comes, they buy a fleet of yours and not those of you competitors.

Not surprising therefore that we find some examples of bribing customers in this area. From a strictly economic standpoint the paying of a bribe simply lowers the price at which the product is sold. But the bribe is more than a price reduction, it is more like a personal payment to members of the purchasing company. It may take the form of products for their personal use - a paid holiday for example. In the commercial aircraft industry one of the most famous bribe scandals goes back to the period 1970-75 when allegedly the Lockheed Aircraft Corporation. paid $22 million to foreign governments, officials and political parties to secure sales contracts. Among those allegedly on the payroll were the then Japanese prime minister, the Dutch Royal Family and various Italian politicians. Further revelations in 1976 showed that many of Lockheeds competitors had been doing the same thing.

In the field of military equipment, including aircraft, similar considerations apply. No government wants its armed forces to have a variety of different tanks, aircraft, missiles, rifles etc. each with their own specific munitions, training and maintenance requirements. Governments will normally decide between the competition and then go for one, or at least a very few, suppliers for specific types of armament.

Tim Webb notes two other factors in the course of his discussion:

• In the UK armaments industry cost overheads are high due to relatively short production runs and thus the need recoup costs by selling as much as possible overseas.

• Many of the products of the UK arms industry face declining markets. The aircraft in question here, the Typhoon Eurofighter was designed for an epoch when the main potential enemy was high flying Soviet bombers. That threat has long since passed. A cursory glance at the major armed conflicts around the world today - the Congo, Afghanistan - will show that the emphasis is on ground troops, infantry weapons, light armoured vehicles. The enemies being fought do not have high flying bombers but are for the main part poorly equipped but highly skilful irregular or guerillas volunteers. Who needs the Eurofighter in such circumstances? And if any potential customers present themselves the temptation to pay bribes to keep them 'on board' is considerable

The next interesting thing that Tim Webb shows is that from the mid 1960s onwards British governments accepted the normality of bribing customers as part of the arms export drive. Webb quotes an internal document from 1999 from the British government's Defence Export Services Organisation (DESO) . The document said  "In certain parts of the world it has become commonplace for special commissions to be paid. This is a matter for DESO, to whom all requests for special commissions should be referred." Special commissions' is of course a polite word for bribes.

It is crucial to understand that at this time bribery of foreign officials (such as officials in the Defence Ministry of a potential purchaser government) may have been frowned upon but it was not a criminal offence, unlike bribery of domestic government officials, until very recently -2001 to be precise. We are dealing, in other words, with a regulatory offence of the type we have already discussed. In the US and many other countries such bribery is a criminal offence and the US and other countries were putting pressure on the UK government to criminalise such activity. It was brought into UK law as part of anti-terrorist legislation. The 2001 Anti-Terrorism, Crime and Security Act, section 12 extended the traditional crime of bribery of public officials to include individuals where "functions of the person who receives or is offered a reward have no connection with the United Kingdom and are carried out in a country or territory outside the United Kingdom".

BAE systems and the Saudi connection

Meanwhile the Saudi Arabian connection had become very important for the British armaments industry since the 1960s and Tim Webb gives an account of the continually close relations between the ruling Saudi royal family and the British government.  Our case study begins in 2005 when the Saudis agreed, for whatever reason, to buy 72 Eurofighter Typhoon aircraft (of which BAE is the British manufacturer) under conditions in which other countries were considering cancelling contracts, usually for the reasons we have mentioned above. BAE would of course be the main British beneficiary from this contract. It was conjectured that the paying of commissions may have been important in securing this contract because there was no obvious military reason why the Saudis needed a fleet of these aircraft. (see the article by Campaign Against Arms Trade)

The SFO gets interested

As we have mentioned, the paying of bribes or commissions became a criminal offence in 2001. The Serious Fraud Office (SFO) which we have already mentioned, began to get interested in the BAE-Saudi relationship. There was, by the mid - 2000s allegedly evidence of permanent 'slush fund' from which various payments could be made to Saudi officials. The main ways of transmitting funds, it was alleged, besides direct payment from this fund to the Swiss bank account of a Saudi intermediary also included:

• various types of 'offset arrangements' such as for example a Saudi company providing infrastructure services to a British run facility in Saudi Arabia would over-charge for its services and pocket the difference
  

• barter arrangements: arms for oil. Some of the armaments were exchanged directly for Saudi oil (rather than money) but some of the oil included in the deal would not actually be delivered but rather sold off by the Saudi officials who then pocket the money

alongside this, there were, it was alleged, all sorts of hospitality arrangements provided in the UK free to Saudi visiting officials, pilots on training courses for the new aircraft etc.

By 2004 the SFO investigation was gathering pace and by 2005 the investigators were making requests to the Swiss banks which allegedly held accounts through which the bribery payments were allegedly passing

A leading Saudi prince (Prince Bandhar) who was concerned with the aircraft contract got wind of what was happening and called in the British Ambassador to request that the investigation be halted. The head of the SFO, Robert Wardle at first resisted pressure from the Prime Minister (Tony Blair), the Attornery General (Lord Goldsmith) and allegedly BAE itself

In September 2006 the SFO obtained the consent of the relevant Swiss banks to view the accounts of the agent of Prince Bandhar

On the 14th December 2006 the inquiry was dropped just as Swiss banks were about to wire the documents to the SFO.

Criminalisation vs national security?

Robert Wardle, the head of the SFO claimed that calling off the investigation was his decision. It was said that he called it off because it wasn't making sufficient progress. But this seems unlikely perhaps in view of the fact that the SFO was about the recieve important documents. Meanwhile both the Prime Minister and the Attorney General made public comments which could be construed as suggesting that they had been instrumental in pressuring Wardle to discontinue the investigation. The Attorney General, Lord Goldsmith said:  "It has been necessary to balance the rule of law against the wider public interest."  While Tony Blair said  "Our relationship with Saudi Arabia is vitally important for our country... that strategic interest comes first"

What was meant by 'the wider public interest' and how could it conceivably clash with the principle of the rule of law which is fundamental to our criminal justice system?  Blair referred to 'national security' It was then said that Saudi Arabia was a vital source of information to the British Security Services about terrorist activity directed at the UK and that the Saudis might end this if the SFO investigation continued. There seemed to be a shortage of facts to support this position and one response was that in any case the Saudis were equally dependent on information given to them by the UK government regarding the activities of Saudi dissidents based in the UK.

Meanwhile the US and numerous other countries were furious with the UK decision. The decision did not go unchallenged in the courts. The pressure group Campaign Against Arms Trade  took the matter to the High Court which in April 2008 ruled that the Director of the SFO had acted unlawfully in stopping the investigation. The court noted:

"No-one, whether within this country or outside, is entitled to interfere with the course of our justice. It is the failure of Government and the defendant [the Director of the Serious Fraud Office] to bear that essential principle in mind that justifies the intervention of this court."

However in july 2008 this was overturned by the House of Lords (the highest appeal court in the UK) on the grounds that the Director of the SFO had a right to make such a decision

Meanwhile BAE itself had set up a committee in 2007 under former Lord Chief Justice Lord Woolf, to review its ethical business practices. You can read the report here

Nor has the SFO given up. BAE sells arms around the world and a number of SFO investigations with regard to bribery are under way including

Tanzania: In 2001 This relatively poor African state was persuaded to buy an expensive military air traffic control system (cost £28 million) that they didn't need, given the relative size of the Tanzanian air force. It is alleged that Prime Minister Tony Blair championed the sale against opposition from other Cabinet members such as Clair Short MP. It was later alleged  that BAE had paid commissions amounting to about 29% of contract price.

South Africa: In December 2008 evidence emerged suggesting that BAE paid £100million to 'financially incentivise' various South African purchasing officials with regard to the purchase of BAE Hawk and Gripen aircraft to the tune of £1.5bn

In March 2009 Count Alfons Mensdorff-Pouilly, who acted as an agent for BAE  (i.e. he ran various intermediary companies) was arrested in Austria in connection with bribery in relation to Hungarian and Czech military aircraft sales

The key issues:

The overwhelmingly central issue is the right of the government to stop a major criminal investigation and thereby undermine the rule of law. The doctrine of the rule of law is central to modern conceptions of legality in an open, democratic society.  It implies, among other things, that the law will be enforced impartially, against any person or institution that violates it.  In the 17th and 18th centuries a key issue was to stop the King intervening in the legal system by stopping the prosecution of people who were his friends or under his patronage. Even the King must be subject to the law. Now in 2008 the issue seems to have reared its head again.

The only defence I can think of, and I have not heard this from any other source, is that while it would of course be unthinkable for a government to try and stop a murder prosecution, it is not so disastrous with regard to a law (outlawing bribery of foreign officials) that is very much mala prohibita and only a crime in a 'technical sense' and only enacted in 2001. To this the reply would of course be that law is law and once we allow laws to be non-enforced just because they are to some extent 'technicalities' then we open the floodgates to increasing outside interference with our rights and liberties.