On Monday 30 November 2015, the Serious Fraud Office (SFO) successfully concluded the first case in the UK prosecuted under section 7 of the Bribery Act 2010 (UKBA) by way of Deferred Prosecution Agreement (DPA).
- ICBC Standard Bank Plc (at the time Standard Bank Plc, the Bank) was ordered to pay a financial penalty and compensation, and suffered a disgorgement of profit, as a result of failing to prevent bribery by an associated person, contrary to section 7(1) of the UKBA. Including the SFO's costs, this totalled nearly USD $33 million.
- The financial penalty was reduced by a third because the Bank made an early self-report to the authorities.
- A DPA was deemed appropriate given the fact that the allegation was limited to the failure to prevent bribery rather than a bribery offence, the speed with which the Bank self-reported, the full disclosure of the results of an internal investigation to the SFO, and the new ownership of the Bank.
- The terms of the DPA provide that the SFO's prosecution is suspended for three years, after which it will be dropped provided the Bank meets certain conditions.
- The Bank concurrently settled a civil investigation by the U.S. Securities and Exchange Commission (SEC), and the U.S. Department of Justice (DOJ) have closed their own related criminal investigation.
- The US authorities confirmed that the financial penalty imposed in the UK was broadly similar to that which would have been imposed in the US had the matter been dealt with there.
The case demonstrates the benefits of conducting swift and detailed investigations into allegations of wrongdoing and cooperating with the regulatory authorities. It also reaffirms the importance of maintaining "adequate procedures" designed to prevent bribery by an associated party.
In 2012 the Government of Tanzania began the process of raising USD $600 million by way of a sovereign note private placement. The Tanzanian subsidiary of Standard Bank Group Ltd (SBG), Stanbic Bank Tanzania Ltd (Stanbic), not being licenced to deal with non-local foreign investors in an appropriate capacity, engaged the assistance of the Bank, and they jointly sought the mandate from the Tanzanian Government. However, negotiations failed to progress, and Stanbic engaged a company called Enterprise Growth Market Advisors Limited (EGMA) for assistance.
One of the three directors and shareholders of EGMA was a member of the Tanzanian Government, whilst another was a former Chief Executive Officer of the Tanzanian Capital Markets and Securities Authority. Whilst there was clearly a risk of improper influence, the Bank, which did not have adequate procedures in place to guard against this risk, relied on Stanbic to conduct appropriate due diligence in relation to EGMA, and made no independent enquiries about the role that EGMA was to play in the transaction.
In November 2012 the Bank received the mandate to act on behalf of the Tanzanian Government. EGMA's fee for the transaction was set at 1% of the funds being raised (USD $6 million) and the Bank was set to receive 1.4% of the funds raised by way of remuneration (USD $8.4 million). The financing was completed in March 2013, and whilst there was no evidence that EGMA actually provided any services in relation to the transaction, their fee was subsequently paid into an account at Stanbic (as agreed between the parties). Within ten days almost the entire amount had been withdrawn in cash.
The withdrawals caused concern for the staff at Stanbic, who quickly escalated the matter to the head office of SBG. A law firm was appointed to investigate and, within a month of the matter being reported to the head office, the SFO and Serious Organised Crime Agency (now part of the National Crime Agency) had been informed.
On the basis of the findings of the internal investigation, the SFO formed the view that the Bank had failed to prevent bribery by persons associated with it (being Bashir Awale, the Chief Executive Officer of Stanbic, Shose Sinare, the Head of Corporate and Investment Banking at Stanbic, and Stanbic itself), contrary to section 7 of the UKBA. The SFO also formed the view that the Bank would not be able to rely on the "adequate procedures" defence in section 7(2) of the UKBA. The applicable policy was unclear and had not been reinforced appropriately to the relevant deal team. Furthermore, the team had not received sufficient training about their obligations, and the Bank's procedures, in situations where two entities within SBG were jointly engaged on a transaction, and one of these entities had engaged a third party as a consultant or introducer.
It is important to note that there was no allegation of any knowing participation in any act of bribery on the part of the Bank or any of its employees.
DPAs are a fairly recent addition to UK law, having been introduced by the Crime and Courts Act 2013. They facilitate a mechanism by which a company, partnership or unincorporated association (as opposed to an individual) can avoid prosecution for certain offences by way of negotiated agreement. The agreement must be approved by the court (in contrast to the procedure in the U.S.), in the interests of justice, and the terms of the DPA must be fair, reasonable and proportionate.
Lord Justice Leveson, sitting in the Royal Courts of Justice, agreed on 30 November 2015 that this matter was suitable for resolution by way of DPA. Under the terms of the DPA approved by the court, the SFO agreed to suspend their prosecution of the Bank for a period of three years, after which they will discontinue the prosecution altogether, provided the Bank meets certain conditions. These conditions include:
- payment of compensation of USD $6 million plus interest of USD $1,046,196.58 to the Government of Tanzania;
- disgorgement of profit of USD $8.4 million;
- a financial penalty of USD $16.8 million (calculated as three times the USD $8.4 million profit made, with a 1/3 reduction for making the earliest possible self-report);
- past and future co-operation with the relevant authorities in relation to all matters arising out of the conduct described in the draft Indictment;
- commissioning and submitting to an independent review (at its own expense) of existing anti-bribery and corruption controls, policies and procedures in relation to all applicable laws (including the UKBA); and
- payment of the SFO's costs of £330,000.
The DPA is clear that none of these penalties or payments can be used by the Bank as a basis for reducing payment of any tax. The DPA also states that:
"These terms do not provide any protection against prosecution for conduct not disclosed by Standard Bank prior to the date on which the Agreement comes into force nor does it provide protection against prosecution for any future criminal conduct committed by Standard Bank. In addition these terms do not provide any protection against prosecution of any present or former officer, director, employee or agent of Standard Bank."
Amongst the numerous factors that Lord Justice Leveson considered in determining whether he was prepared to permit a DPA in these circumstances, the following are particularly notable:
- seriousness of conduct - the Bank was being charged with a failure to prevent bribery by reason of inadequate procedures, not the primary offence of bribery (in which instance Lord Justice Leveson noted a DPA would be less likely to be in the interests of justice).
- self-reporting - it was noted that the Bank had "immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter".
- cooperation - the Bank had cooperated with the SFO from "the earliest possible date", including providing a summary of first accounts of interviewees, facilitating interviews of current employees, providing detailed responses to requests for information and access to the document review platform.
- previous convictions - the Bank had no previous convictions for bribery or corruption (it did have some past anti-money laundering failures, but these were seen to have been substantively remedied, and unconnected in any event).
- new ownership - since the time of the offence, ICBC had acquired a 60% majority shareholding in the Bank, meaning that the Bank was a substantially different entity to that which had failed to prevent bribery.
This case is significant for a number of reasons. It is the first successful conclusion of a case under section 7 of the UKBA, and the first DPA in the UK. The case demonstrates that, in appropriate circumstances, companies can avoid criminal prosecution through swift internal investigation, and prompt self-reporting to and cooperation with the relevant authorities.
An interesting feature is the international aspect of this case. The Tanzanian authorities, who are also investigating the activities of Stanbic, were informed of the proposed DPA and consented to the compensation payment to the Tanzanian Government. They may therefore be less likely to pursue their own investigation and financial penalties. Furthermore, the DPA was concluded against the backdrop of an investigation by the SEC into disclosure failings by the Bank. The SEC has agreed that, given the disgorgement of profits in the UK, it will accept a civil penalty from the Bank of USD $4.2 million by way of settlement of their investigation. It is likely that the penalty would have been significantly higher had this not been the case.
In determining the appropriate financial penalty in the UK, Lord Justice Leveson was primarily guided by the Sentencing Council Guidelines. However, he noted that, from a public policy perspective, the penalty should be broadly similar to that which would be imposed by the DOJ. In this instance, the DOJ confirmed that, had the matter been dealt with as a criminal matter in the U.S., the financial penalty imposed would have been comparable to that proposed by the DPA. Significantly, the DOJ has also closed their own criminal investigation into the matter given the resolution of the matter in the UK. It will be interesting to see the approach taken in future DPAs where the criminal penalty imposed would have been significantly greater in the U.S.
The case underlines the importance for companies subject to the UKBA of ensuring robust anti-bribery policies and procedures, tailored to the unique features and risks their business model exposes them to. If properly implemented, these policies will provide a complete defence against a charge under section 7 of the UKBA, which, as we have now seen, the SFO is serious about prosecuting.
In concluding, Lord Justice Leveson stated:
"I have no doubt that Standard Bank has far better served its shareholders, its customers and its employees (as well as all those with whom it deals) by demonstrating its recognition of its serious failings and its determination in the future to adhere to the highest standards of banking. Such an approach can itself go a long way to repairing and, ultimately, enhancing its reputation and, in consequence, its business."
Now that the precedent has been set, it seems likely that DPAs will become a regular feature of the UK's regulatory landscape.