Coming clean: first Deferred Prosecution Agreement and use of section 7 Bribery Act corporate offence

Written on 11 Dec 2015

A judgment handed down on 1 December 2015 provided the long-awaited first use of a Deferred Prosecution Agreement (DPA), in what was also the first use by a prosecutor of the corporate offence of failing to prevent corruption, prescribed by the Bribery Act 2010.

The judgment approved an agreement reached between the Serious
Fraud Office (SFO) and Standard Bank PLC, and represents the first use of two powers
that the SFO believes are important tools with which it can address
instances of alleged corporate wrongdoing.

The facts of the case

The case relates to the putting into place in 2012 of a sovereign note private placement, by which the government of Tanzania raised significant public funds to aid an on-going “Five year Development Plan”. Standard Bank and Stanbic Bank Tanzania Ltd (Stanbic) secured the mandate for the deal and ultimately were to charge fees of 2.4% on the total sum raised by the private placement.

1% of those fees were diverted to EGMA, a “local partner”, which was alleged to have had clear ownership and control links to senior Tanzanian public officials. In March 2013 EGMA received a payment of US$6 million from Stanbic representing the 1% fee and, within days, the majority of this sum had been withdrawn in cash.

Self-reporting and negotiation of the DPA

Stanbic staff raised concerns quickly following the withdrawal of the sums paid to EGMA, and Standard Bank in London subsequently instructed external legal advisors to self-report the matter to the authorities, whilst an internal investigation remained on-going. Having received the results of the report, the SFO formed the view that, if it continued to investigate and prosecute the matter, there were realistic prospects that it would secure a conviction.

It was not suggested that Standard Bank was in anyway a participant in the underlying misconduct. However, its failure to exercise adequate oversight over Stanbic was sufficient to engage the offence under section 7 of the Bribery Act 2010 of failing to prevent bribery. Standard Bank did not seek to assert that it had adequate procedures in place, which would have enabled it to have relied on the relevant statutory defence.

In this instance, the SFO and Standard Bank looked to pursue the option introduced by section 45 and schedule 17 of the Crime and Courts Act 2013 of entering into a DPA, rather than prosecuting the matter to trial in the courts. The concept of a DPA is more familiar, and has been used extensively in recent years, in the US. In the UK, however, unlike the US, the terms of any DPA must be approved by the courts as being fair and reasonable before it can take effect.

The terms of the DPA

The terms of the agreement reached by the parties and approved by Sir Brian Leveson, President of the Queen’s Bench Division, as being fair reasonable and proportionate were as follows:

  1. payment of compensation of US$6 million plus interest in US$1,046,196.58;
  2. disgorgement of profits on the transaction of US$8.4 million;
  3. payment of a financial penalty of US$16.8 million;
  4. past and future co-operation with the relevant authorities in all matters relating to the conduct arising out of the circumstances of the draft indictment;
  5. at its own expense, commissioning and submitting to an independent review of its existing internal anti-bribery and corruption controls, policies and procedures regarding compliance with the Bribery Act 2010 and other applicable anti-corruption laws; and
  6. payment of the costs incurred by the SFO.

The DPA will be in place for a period of three years, during which time the SFO will suspend its indictment, subject to Standard Bank complying fully with the terms of the DPA. If, during that time, Standard Bank fails to comply with the terms of the DPA, the SFO can continue with its indictment.

The key issues

In determining that the specific agreement proposed was in the interests of justice, the court highlighted four key issues:

  1. the criminality at issue was the failure to prevent the intended bribery by senior Stanbic officials, having regard to the inadequacies of the Standard Bank compliance procedures and the failure to recognise the risks inherent in the proposed fee arrangement;
  2. Standard Bank immediately self-reported and adopted a genuinely proactive approach to the matter. The court noted that it had attached “considerable weight” to this aspect, but stressed that the weight to be given in this respect in each case will be fact-specific and dependent on the totality of the information an organisation provides to a prosecutor. The court specifically indicated that information must not be withheld which would prejudice an effective investigation or the prosecution of the individuals involved;
  3. the extent of any history of similar conduct involving prior criminal, civil and regulatory enforcement actions against Standard Bank; and
  4. the fact that Standard Bank in its present form was effectively a different entity from that which committed the offence.

Calculation of the financial penalty

The judgment provides a helpful indication of the way in which the courts will calculate the financial penalty to be imposed in such circumstances.

By reference to the relevant Sentencing Council Guideline, the court held that a multiplier of 300% should be applied to the fees of US$8.4 million earned on the deal, having regard to the seriousness of the offending by reference to the bank’s culpability and the harm that had been caused. This was then reduced to 200% to take into account the mitigating factors available, producing the final penalty of US$16.8 million.

In addition, Standard Bank was ordered to disgorge the profits it made on the deal and also to pay compensation, to the government of Tanzania, in an amount equal to the sum paid to EGMA plus interest.

Future implications

In concluding his judgment, Leveson P noted:

“It is obviously in the interests of justice that the SFO has been able to investigate the circumstances in which a UK registered bank acquiesced in an arrangement (however unwittingly) which had many hallmarks of bribery on a large scale and which both could and should have been prevented. Neither should it be thought that, in the hope of getting away with it, Standard Bank would have been better served by taking a course which did not involve self report, investigation and provisional agreement to a DPA with the substantial compliance requirements and financial implications that follow. For my part, 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.”

This represents a clear judicial steer to the business community as to the likely approach of the courts, both to companies that chose to engage effectively with the authorities, and of equal significance, to those who do not.

The SFO clearly hopes that this milestone judgment will serve as an incentive for other corporates to engage with the SFO and achieve what the SFO believes will be a constructive outcome to the benefit of all relevant parties.

The judge’s warning against withholding information from the SFO, however, highlights a difficulty that businesses may face. Enforcement agencies will be looking for full cooperation from the outset, often before beginning negotiations on any leniency measures. Where this might include requests to disclose privileged materials, businesses face the risk of waiving privilege that they may otherwise wish to rely on, without any guarantee that the agency will not ultimately decide to prosecute the matter, or the courts refuse to approve a DPA.

The court’s approval of the DPA in this case is to be welcomed, but is not surprising given the relatively clear facts of the case. The judicial position in less clear-cut cases will be more useful for businesses finding themselves having to make difficult decisions.

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