Introduction
On November 30, 2015, a senior judge formally approved the UK’s first Deferred Prosecution Agreement (DPA).1 DPAs were introduced in the UK when Section 45 and Schedule 17 of the Crime and Courts Act 2013 came into force on February 24, 2014. They can be used by UK prosecutors in relation to a variety of offences, including those under the Bribery Act 2010, the Fraud Act 2006 and money laundering offences under the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007.2
The conduct at the centre of this first DPA concerned the alleged failure by Standard Bank plc – a UK-regulated bank – to prevent bribery in breach of Section 7 of the Bribery Act. When the Bribery Act was implemented in 2011, the Section 7 offence received a significant amount of attention as it created liability for companies where bribes had been paid on their behalf by employees, agents or any other persons who performed services for or on the company’s behalf (i.e., “associated persons” for the purposes of the Bribery Act). There is a defence available to this offence where a commercial organisation can show that it had in place “adequate procedures” designed to prevent its “associated persons” from undertaking bribery.3
The Standard Bank case is a significant development in the way prosecutors in the UK deal with the prosecution of certain economic or financial crimes committed by corporations and also provides insight into the interpretation by the UK Serious Fraud Office (SFO) of some aspects of the Bribery Act.
Facts of the Standard Bank Case
The Standard Bank case concerned a transaction to raise US$600 million by way of a sovereign note private placement for the Government of Tanzania (GOT) which resulted in a local Tanzanian company – the executives and shareholders of which included a member of the GOT involved in the transaction – being paid US$6 million by Standard Bank’s sister company, although there was no evidence that the company actually provided any goods or services in relation to the transaction.
Standard Bank was acting as a joint manager alongside its sister bank, Stanbic Bank Tanzania Ltd (Stanbic Bank), on the transaction. In February 2012, their fees for the placement were proposed at 1.4 percent of the gross proceeds raised by GOT. Stanbic Bank subsequently entered into an arrangement with a Tanzanian company called Enterprise Growth Market Advisors Limited (EGMA), which it claimed was acting as a local partner on the transaction. The chairman – and one of the three shareholders of EGMA – was the Commissioner of the Tanzania Revenue Authority (i.e., a member of the GOT) at all relevant times. Both the CEO and the Head of Corporate and Investment Banking at Stanbic Bank appeared to be involved in making these arrangements with EGMA. The fee agreed with EGMA was 1 percent of the gross proceeds raised by GOT and, as such, the total fee for the placement increased from 1.4 percent to 2.4 percent in September 2012. Following the fee increase, the transaction progressed much more quickly than in the previous months, and it was subsequently completed in March 2013. At completion, GOT paid the 2.4 percent fee of US$14.4 million to Stanbic Bank, which retained US$4.1 million and distributed the remainder, with US$4.3 million going to Standard Bank and US$6 million going to EGMA. The majority of EGMA’s US$6 million was subsequently withdrawn in cash between March 18 and March 27, 2013.
The withdrawals by EGMA caused significant concern amongst staff at Stanbic Bank, who referred the matter to the relevant internal compliance and reporting teams towards the end of March 2013. The concerns were raised with Standard Bank in London in April 2013 and, on April 17, Standard Bank instructed external lawyers to report the matter to authorities. A report was made to the UK Serious Organised Crime Agency on April 18, 2013 (the agency that was merged into the newly formed National Crime Agency in October 2013). This report was presumably a Suspicious Activity Report in respect of potential money laundering pursuant to Standard Bank’s obligations under Part 7 of the Proceeds of Crime Act 2002 (POCA).4 A report was then made by Standard Bank’s external lawyers to the SFO on April 24, 2013. Those lawyers then conducted an investigation on behalf of Standard Bank, and the report of that investigation was subsequently shared with the SFO on July 21, 2014.
Key Terms of the DPA
The key terms of the DPA are as follows:
- It will be effective for a three-year term ending on November 30, 2018.
- Standard Bank will pay US$6 million plus interest of just over US$1 million to the GOT as compensation for the 1 percent fee paid by Stanbic Bank to EGMA.
- Standard Bank will disgorge US$8.4 million which represents the fee received as joint lead managers by Standard Bank and Stanbic Bank.
- Standard Bank will pay a financial penalty of US$16.8 million.
- Standard Bank will pay a sum of £330,000 in respect of the SFO’s costs of investigating and resolving the matter.
- At its own expense, Standard Bank will engage an independent report (the scope of which is to be agreed with the independent reviewer and the SFO) on its anti-bribery and corruption policies and their implementation.
What Does the Case Tell Us About DPAs and the Bribery Act?
In relation to the use of DPAs, the key insights are:
- As the SFO has emphasised in public speeches, for a DPA to be available, a company must engage with the SFO at an early stage and cooperate fully, including in relation to providing access to witnesses and documents.
- The level of financial penalty imposed when a company enters into a DPA is likely to be the same as if it had been prosecuted and had pleaded guilty. In addition, the case demonstrates cooperation between the SFO and U.S. authorities and an expectation that the financial penalty will be at a similar level to that which would have been imposed by the U.S. authorities.5
The key findings in relation to the Bribery Act are:
- A company that has in place global policies and procedures covering bribery and related issues will not be able to rely on the “adequate procedures” defence to the Section 7 offence where those policies and procedures are not clear on their face and where they are not cascaded down through an organisation with appropriate training and communications. The SFO expects a company with “adequate procedures” to be able to demonstrate that employees on the front line actually “live” those policies and procedures so that an “anti-corruption culture” is in place.6
- For the purposes of proving the underlying bribery in respect of a Section 7 offence of failing to prevent bribery, strong inferences that payments made could only have been bribes will be sufficient. This should also ensure that companies are more vigilant when assessing the purpose of payments, particularly to third-party agents.
Conclusion
As this was the first DPA and the first time there has been an indictment under Section 7 of the Bribery Act,7 there are obviously a number of questions and issues that remain outstanding. For example, the Standard Bank case did not provide insight into the interpretation of the jurisdictional scope of the Section 7 offence under the Bribery Act, given that the company involved was a UK company. Other questions that remain unanswered include:
(i) the severity of conduct that would prevent a DPA from being offered to a company;
(ii) how the SFO deals with assertions of privilege and the impact of any such assertions on the availability of a DPA;8
(iii) how quickly companies that are not subject to reporting requirements (such as those under POCA) are expected to report to the SFO to be considered to have fully cooperated with the SFO; and
(iv) how the UK and U.S. authorities will proceed where they both have equally strong jurisdictional grounds under their respective anti-bribery regimes.9
These issues will be dealt with as the prosecutors and the courts deal with more DPAs and Bribery Act cases. Indeed, further answers might be provided in the near future as the SFO announced on December 2, 2015 that Sweett Group plc has admitted an offence under Section 7 of the Bribery Act in relation to conduct in the Middle East. Further details of this case were provided by the SFO on December 9, 2015, which show that the company is being charged in relation to conduct occurring between December 1, 2012 and December 1, 2015 involving bribes paid by a subsidiary (or its servants and agents) to secure a contract for project management and cost consulting services in connection with the building of a hotel in Dubai. It is not yet clear when the Sweett Group case will come before the court. It does not appear that the case is being dealt with by way of a DPA.
1 Lord Justice Leveson’s final judgment handed down on November 30, 2015 can be found here.
2 Part 2 of Schedule 17 of the Crime and Courts Act sets out the full list of offences in relation to which a DPA may be entered into.
3 Section 7(2) of the Bribery Act.
4 Section 330 of POCA makes it an offence if a person in the regulated sector (such as a bank or similar financial institution) knows or suspects that someone is money laundering (i.e., acquiring, using or dealing with the proceeds of a crime); that information came to the person in the course of business in the regulated sector; and the person does not make a disclosure as soon as it is practicable after the information came to them.
5 Lord Justice Leveson’s preliminary judgment handed down on November 4, 2015 stated: “Bearing in mind the observations of Thomas LJ in Innospec Ltd, a useful check is to be obtained by considering the approach that would have been adopted by the US authorities had the Department of Justice taken the lead in the investigation and pursuit of this wrongdoing. Suffice to say that the American authorities have been concerned with the circumstances and have been conducting an inquiry in connection with possible violations of the Foreign Corrupt Practices Act, 15 USC para. 78dd-1. Noting the co-operation of Standard Bank and Stanbic with them, the Department of Justice has confirmed that the financial penalty is comparable to the penalty that would have been imposed had the matter been dealt with in the United States and has intimated that if the matter is resolved in the UK, it will close its inquiry. In the circumstances, there is nothing to cast doubt on the extent to which these aspects of the proposed approach are fair, reasonable and proportionate.” (Emphasis added.) See paragraph 58 of the preliminary judgment which can be found here.
6 The SFO’s Joint Head of Bribery and Corruption stated as follows in a speech given the day after the approval of the Standard Bank DPA: “The quality of an organisation’s compliance culture isn’t defined by how much money it has spent on trying to implement it, or how earnestly people at the top talk about it, but rather by how people at the coal face actually live it.”
7 It should be noted that in September 2015, a Scottish company reached a settlement with the Scottish Crown Office in relation to a failure to prevent bribery under Section 7 of the Bribery Act. This was a civil settlement rather than criminal proceedings. (Click here)
8 Public statements by senior individuals at the SFO have consistently referred to concerns regarding companies asserting privilege in their own internal investigations of the relevant conduct. For example, the SFO’s General Counsel noted in a speech in March 2014: “We do not necessarily accept that assertions of privilege are well-founded. Like everything else in the law, all depends on the facts of the case. Where we do not accept that the claim is well-founded, we are prepared to litigate.”
9 Although the U.S. SEC announced on November 30, 2015 that it had agreed a civil penalty of US$4.2 million with Standard Bank in relation to the same conduct, its press release noted that the SEC “would not have jurisdiction to bring charges under the FCPA because [Standard Bank] was not an ‘issuer’ as defined by that Act.” Instead, the SEC’s action was brought under Section 17(a)(2) of the Securities Act of 1933 which prohibits obtaining money by any materially untrue statement or omission. (Click here)
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