First UK deferred prosecution agreement between the SFO and a bank

On 30 November 2015, Lord Justice Leveson (sitting as a judge of the Crown Court) approved the UK’s first deferred prosecution agreement (DPA) between the Serious Fraud Office (SFO) and Standard Bank relating to a charge under s7 of the Bribery Act 2010 (the Bribery Act).

Standard Bank (a UK-regulated bank) and its Tanzanian sister company, Stanbic Bank Tanzania, pitched for a joint mandate from the Government of Tanzania to act as lead managers for a sovereign note issuance. The proposed fee for the mandate was 2.4% of the proceeds raised, although two of Stanbic’s senior officers had arranged (initially unbeknown to Standard Bank) that 1% of this fee would be paid to a local Tanzanian partner company called EGMA, whose Chairman and substantial shareholder was the Commissioner of the Tanzania Revenue Authority, and therefore a member of the Tanzanian government. EGMA did not subsequently provide any services in relation to the deal, leading to the inescapable inference that the Stanbic officers intended that the 1% fee would induce EGMA’s Chairman (and perhaps others in the government) to show favour to Stanbic and Standard Bank’s proposal.

Standard Bank relied on Stanbic to conduct KYC checks on EGMA and the individuals involved with it. The checks undertaken by Stanbic were at a standard well below that which Standard Bank would have required, particularly given the obvious involvement of politically-exposed persons. Certain “high risk” flags were raised within Stanbic but not followed up.

Standard Bank and Stanbic were subsequently mandated by the Tanzanian government and the financing was completed, raising USD 600 million. Stanbic consequently paid USD 6 million (1%) into EGMA’s newly opened accounts with Stanbic, the vast majority of which was quickly withdrawn in cash by EGMA’s Managing Director, the ex-head of the Tanzanian Capital Markers and Securities Authority. Following this, concerns were quickly raised and escalated within the Standard Bank group, leading to Standard Bank promptly self-reporting in the UK to the Serious Organised Crime Agency (SOCA) and to the SFO. Standard Bank went on to conduct an internal investigation authorised by the SFO.

The result of the investigation was sufficient admissible evidence to enable the SFO to conclude that there was a reasonable suspicion that Standard Bank had failed to prevent bribery by Stanbic, one of its associated persons, and that continued investigation would likely uncover further admissible evidence leading to a realistic prospect of a conviction under s7 of the Bribery Act. Content that the public interest would be satisfied by a DPA in this instance, the SFO proceeded to reach an agreement with Standard Bank to defer prosecution in return for Standard Bank compensating the Tanzanian government to the tune of USD 6 million (being the 1% fee paid to EGMA), disgorging the USD 8.4 million profits in respect of the transaction (being the remaining 1.4% fee) and paying a USD 16.8 million fine, as well as submitting to a review of its anti-bribery policies and paying the SFO’s costs.

COMMENT

This was a pre-packed, model case for both the SFO and the court to demonstrate the effectiveness not only of the recently introduced DPA legislation,¹ but also of s7 of the Bribery Act itself. As reflected in the two very comprehensive but unremarkable judgments from Leveson LJ, the requirements of the legislation, the DPA Code of Practice and the applicable Sentencing Guidelines, were followed to the letter, thereby providing a useful step-by-step guide through the process. But in the absence of any particularly thorny issues, what can usefully be drawn from this case? We pick out two points.

When will prosecutors offer a DPA: the public interest test and cooperation?

The DPA Code of Practice makes clear that “[t]he more serious the offence, the more likely it is that prosecution will be required in the public interest”, and that “[a] prosecution will usually take place unless there are public interest factors against prosecution which clearly outweigh those tending in favour of prosecution.” So why did the SFO elect to offer Standard Bank a DPA rather than prosecute? It came down to two factors: the nature of the alleged offence and Standard Bank’s cooperative approach upon discovering the misconduct.

First, as the judge made clear, the offence that Standard Bank faced was failing to prevent bribery by an associated person arising from the inadequacy of Standard Bank’s own compliance procedures. There was insufficient evidence to suggest that any of Standard Bank’s employees had committed a substantive bribery offence (ie under s1 or s6 of the Bribery Act), so that was not the conduct against which Standard Bank itself had to be judged. It would be going too far, however, to suggest that there is now a rebuttable presumption that a DPA should be offered in every s7 case.

Secondly, Standard Bank self-reported immediately and adopted a genuinely proactive approach to dealing with the issue, cooperating with the SFO at every stage. This high degree of cooperation was clearly a very weighty factor, evidently impressing both the SFO and, ultimately, the court. One question that arises, however, is whether the Standard Bank example sets the minimum bar for the “full cooperation” needed to be offered a DPA. Comments from the SFO suggest that it does. However, in a less clear cut case, where the nature and scope of the misconduct is not so apparent at the outset, it will be asking a lot for a company to self-report and fully open up so quickly. Also, a 55-page statement of facts, in which key individuals were named, is perhaps longer than many were expecting.

Avoiding double jeopardy: authorities in other jurisdictions

One concern for a company considering entering into a DPA is the prospect of agreeing to stringent compensation payments and financial penalties in the UK, but remaining open to fines being levied in other jurisdictions by prosecutors and agencies then-armed with the DPA statement of facts. This lack of certainty about treatment elsewhere is a significant disincentive to any company considering signing up to a DPA.

In the Standard Bank case, it is clear that significant steps were taken to try to remove this uncertainty. The U.S. Department of Justice (DoJ) was consulted both on the size of the fine being imposed under the DPA and to obtain an indication that it would drop its own investigation should the matter be dealt with by a concluded DPA in the UK. The U.S. Securities and Exchange Commission (SEC) was also informed of the proposed DPA, in particular the disgorgement of profit, and announced its agreed civil penalty effectively simultaneously. Further, the appropriate Tanzanian anti-corruption authority was, apparently, consulted and confirmed that it did not object to the DPA.

This proactive approach is commendable. However, in the absence of any formal agreements or treaties, it remains open to question whether authorities in other jurisdictions will always be willing to yield so readily, particularly in the context of higher stakes, or in a more politically charged case.

Opposition to settlements

A letter from four prominent anti-corruption organisations to the OECD ahead of its Anti-Bribery Ministerial meeting on 16 March questioned whether the increasing prevalence of settlements is reducing the deterrent effect of anti-bribery laws (about 69% of cases between 2009 and 2014 were settled, according to OECD figures). New legislation allowing settlements is in progress in France, Ireland and Canada and more jurisdictions are likely to follow. There is a call for a set of international OECD principles about the appropriate use of settlements in bribery cases.

Footnote:

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.​