The English Court has approved its first Deferred Prosecution Agreement (“DPA”) in a case brought by the Serious Fraud Office (“SFO”) against ICBC Standard Bank Plc (“Standard Bank”). It is also the first case brought under section 7 of the Bribery Act 2010.
Standard Bank worked together with its subsidiary, Stanbic Bank Tanzania Ltd (“Stanbic Bank”), on a sovereign note private placement sought by the Tanzanian Government to raise $600 million.
Stanbic Bank entered into an agreement with a Tanzanian Company called Enterprise Growth Market Advisors Limited (“EGMA”). Two of EGMA’s directors and shareholders were members of the Tanzanian Revenue Authority and thus the Tanzanian Government. It was agreed that EGMA would receive 1% of the funds raised; in order to meet this cost, the fee for the placement was increased from 1.4% to 2.4%. There is no evidence that EGMA provided services in relation to the transaction. It received $6 million, which was shortly thereafter withdrawn in cash.
The cash withdrawal concerned Stanbic Bank who alerted Standard Bank and within three weeks it self-reported the matter to the SFO. The SFO investigated the report and found there was a reasonable suspicion that Standard Bank had failed to put in place adequate compliance procedures to prevent bribery and it had failed to recognise the inherent risks of a transaction.
At the conclusion of its investigation, the SFO proposed a DPA and asked the Court to approve the proposal. The Court has declared that the proposed DPA in this case is in the interests of justice and that its terms are fair, reasonable and proportionate, the Judge finding that, “of particular significance was the promptness of the self-report, the fully disclosed internal investigation and co-operation of Standard Bank. Finally, also relevant were the agreement for an independent review of anti-corruption policies and the fact that Standard Bank is now differently owned.”
The terms of the DPA require Standard Bank to adhere to certain obligations for a period of three years. If it complies with the agreement it will not be prosecuted on a charge of failure to prevent bribery. The obligations include paying a penalty of $16.8 million to the SFO, disgorging profits of $8.4 million, paying SFO's costs and paying compensation of $7.05 million to the Tanzanian Government. No tax reduction will be sought in relation to these payments. It will also be the subject of an independent review of its existing anti-bribery and corruption controls, policies and procedures.
David Green, Director of the SFO, has said that “this landmark DPA will serve as a template for future agreements”. It also stands as a template for self-reporting under the Bribery Act and the significant benefit that can be gained by fully co-operating in circumstances where a serious breach has been identified. More generally, in circumstances where the SFO's funding has recently been cut, it will see the potentially increased use of DPA's as a significant benefit. The concern with DPAs is always that justice is seldom seen to be done. Whether the Court actively polices this aspect remains to be seen and in the event that DPAs become more common place in the UK, greater focus will be placed on the Court's role and it will be keen to ensure that it is not seen as a rubber stamping exercise.
There will often be a tension in relation to the pursuit of individuals involved in any wrong-doing. In any DPA the SFO will secure the Company's co-operation in relation to any ongoing investigation of individuals and there is a danger that Companies may become more prone to blame current and former Directors and Officers if it helps buy the Company a better deal.
Significant coverage issues will arise if a claim is presented to D&O Insurers in this regard.
Any admissions made in the context of the DPA may trigger a dishonesty exclusion. Consideration would need to be given to the precise scope of the admission and who made the admission.
A claim by the company against a director for losses it has suffered resulting from the DPA are likely to fall foul of public policy principles preventing an indemnity for fines and penalties (as per the Court of Appeal in Safeway v. Twigger).