Summary

The English High Court today approved a deferred prosecution agreement (DPA) between the Serious Fraud Office (SFO) and ICBC Standard Bank Plc (the Bank) in relation to allegations that the Bank (prior to its takeover by ICBC) had failed to prevent two executives of Stanbic Bank Tanzania Limited (Stanbic) (a former sister company of the Bank) from bribing Tanzanian government officials (via a Tanzanian consulting firm) into awarding a US$ 600m capital raising mandate to the Bank and Stanbic.  The Bank made a suspicious activity report (SAR) and self-reported to the SFO in April 2013 within three weeks of becoming aware of the issue, following an internal investigation.  It then cooperated fully with the SFO, resulting in today’s approval and publication of the DPA. 

Under the terms of the DPA, which is to last for three years, the Bank must (i) compensate the Government of Tanzania in the amount of US$ 7.05m (including interest) within seven days, (ii) pay a fine of US$ 16.8m (which incorporates a one third reduction for self-reporting and cooperating with the SFO at the earliest stage), (iii) disgorge all profits resulting from the transaction (US$ 8.4m), and (iv) pay the SFO’s costs (around £330,000), which Lord Justice Leveson noted today would have been significantly higher if the SFO had not had the benefit of reports from the Bank’s internal investigation, which was carried out by external counsel.  No tax reduction will be sought in relation to these payments. Importantly, and stressed by the judge in approving the DPA, the Bank must also commission and submit to an independent review (i.e. a compliance monitor) of its existing internal anti-bribery controls and procedures regarding compliance with relevant anti-corruption laws and implement any advice or recommendations made by the monitor within 12 months of its final report.

This is the first DPA to be concluded in the UK since they became available in February 2014.  It is also the first case brought under section 7 of the Bribery Act 2010 and provides some useful insight into how the SFO and courts will approach that offence.  It represents a significant moment in the UK authorities’ fight against corporate crime, providing (i) proof that the SFO can deliver a non-prosecution outcome for corporates willing to engage with the SFO on its terms and (ii) guidance on how the authorities and courts will approach this new mechanism, including as to financial and other resolution mechanisms.  It highlights that agreeing a DPA is not an easy way out for a corporate involved in wrongdoing, but also shows that cooperation can reap benefits in terms of a relatively swift resolution with limited reputational damage.

The SFO has already indicated that it expects to conclude another DPA before the end of the year; regardless, this DPA may persuade some corporates currently unsure whether to engage with the authorities that cooperation is worth the risk.

What is a DPA?

DPAs are public, judge-approved agreements negotiated between a prosecutor and a corporate (on invitation only from the prosecutor), under which the corporate avoids a prosecution for economic crimes (such as bribery, fraud or money laundering) by accepting a statement of facts as to the underlying wrongdoing, agreeing to certain terms and complying with them during the life of the agreement.  Before being approved, the judge must be satisfied that the proposed DPA is in the interests of justice and its terms are fair, reasonable and proportionate in all the circumstances, including the seriousness of the offending involved.

DPAs are a discretionary tool designed (i) to incentivise corporates to self-report wrongdoing and cooperate with the authorities to achieve a swift, fair and certain outcome and (ii) to ease the financial burden of lengthy investigations and prosecutions, making it easier for prosecutors to resolve cases and free up resources to take on more. 

The SFO has heralded DPAs as a valuable addition to the prosecutor’s toolkit, but has also adopted hard-line rhetoric as to the scope for corporates to benefit from them and the level of cooperation required.  In particular, the SFO has repeatedly stated that DPAs will only be offered to corporates who self-report early (and before the SFO is aware of the issue) and undertake to cooperate fully; they should not “trample over the crime scene” before engaging with the SFO by conducting extensive internal investigations that may alert individual offenders to the possibility of individual prosecution and lead to the destruction or concealment of evidence. 

Some commentators have suggested that the SFO’s hard-line approach has undermined the potential utility of the tool, scaring off potential participants for fear that the prosecutor’s expectations are too high and carry too much risk.  Nevertheless, the Press has reported that the SFO has been in DPA negotiations with several corporates throughout the course of 2015, including Tesco, Rolls-Royce and small Rotherham-based technology firm, Sarclad.  However, until its statement on 26 November 2015, the SFO had not announced (nor had the Press suggested) any investigation into ICBC Standard Bank Plc. 

The facts

The Bank is a financial markets and commodities bank headquartered in London and jointly owned by South African lender Standard Bank and Industrial and Commercial Bank of China (ICBC) since ICBC acquired a 60% stake in February 2015.  The issues covered by the DPA relate to the Bank’s activities in Tanzania in 2012-2013, prior to ICBC’s acquisition. 

According to the judgment, the Bank failed to prevent an associated person (in this case, Stanbic and/or two of its employees (Bashir Awale, former Chief Executive Officer who was sacked in August 2013, and Shose Sinare, former Head of Corporate and Investment Banking who resigned in June 2013)) from committing bribery in circumstances in which they intended to obtain or retain an advantage for the Bank by: (i) promising and/or giving Enterprise Growth Market Advisors Limited (EGMA) (a local consultancy firm, whose membership consisted of at least one senior official from the Government of Tanzania) US$ 6m where EGMA was not providing any consideration for the payment; and (ii) intending to induce representatives of the Government of Tanzania to improperly perform a relevant function (namely to favour and appoint the Bank and Stanbic to raise monies for the Government of Tanzania). 

Stanbic appointed EGMA to assist in winning the mandate but the Bank had no oversight of or input into the due diligence conducted on EGMA by Stanbic prior to that appointment.  According to the judgment, the Bank’s policies regarding how different group entities can work together on transactions and in particular, where the other group entity engages an introducer or consultant, were unclear, not effectively communicated to the deal team and training did not give sufficient guidance to the Bank’s staff on this issue.  Accordingly, there was insufficient evidence to enable the Bank to rely on an “adequate procedures” defence.

Within three weeks of becoming aware of the issue, the Bank self-reported to the SFO and made a SAR to the then Serious Organised Crime Agency (SOCA) and appointed counsel to embark upon an “unrestricted, comprehensive investigation”, with regular reporting to the SFO.  The self-report was made prior to DPAs even existing (as they only became an available tool in February 2014). 

The investigation concluded that the circumstances giving rise to the DPA were an isolated incident, relating to one particular transaction and that no one in the Bank was aware of or involved in the actions of the two rogue Stanbic employees.

Comment

While today’s decision gives some indication of how the SFO and courts will approach DPAs going forward (not least in respect of how early they expect self-reports to be made and the extensive level of cooperation), it may be some time before the subject of DPAs can be addressed with any level of certainty.  The circumstances surrounding not only the wrongdoing, but the steps taken by the corporate and its management upon discovering the wrongdoing, appear to be crucial in determining whether a DPA may be a potential outcome for the corporate and ultimately, the terms that may be appropriate.  Such circumstances will be highly fact-specific and therefore cases may be easily distinguishable by the authorities and/or courts.  For example, in this case, the Bank’s investigation apparently showed that this was an isolated incident and that there was no one within the Bank who was implicated in the Stanbic employees’ wrongdoing.  The court also highlighted as a relevant factor that the Bank was under new ownership by the time that the DPA came before the court.  Accordingly, those considering whether to approach the SFO to self-report wrongdoing with the hope of being offered a DPA should do so only having a full appreciation of the potential risks and benefits.

Prior to this decision, many commentators had focused on the risks of self-reporting, but today’s decision also shows how engagement can work to the corporate’s benefit.  The fact that this matter was under the radar until the DPA was announced, shows that the self-report and DPA process can be used to limit the damage to the corporate’s reputation and hence assist in limiting the collateral damage to shareholders and staff that typically result from allegations of corruption and investigations getting into the public domain, with those investigations typically taking years before a final outcome.  Indeed, this was a point highlighted by the judge in his concluding remarks.  However, the terms of this DPA also show those critical of the scheme that DPAs are not an easy option for companies and can result in lengthy and costly remedial steps being required (with a positive “reform” agenda, rather than merely punishment), and which go beyond any sentence that could be imposed following a conviction in a contested trial. 

It also clarifies the apparently limited scope for the court and prosecutor to reach a DPA which provides for a financial outcome that is more beneficial to the corporate than if it had been convicted following a guilty plea, as the scheme requires an outcome “broadly comparable to the fine that a court would have imposed” following such a guilty plea.  In this case, we note that the appropriate penalty was deemed to be 300% the original fee paid, less a third.  Even with the discount, this penalty appears to be on the high-end of the scale which, taken together with the other wide remedial steps available (and imposed here), suggests that DPAs will not necessarily be financially beneficial as compared to an early guilty plea, looking at the penalties in isolation of the wider picture.

The decision itself is noteworthy for a number of reasons:

  1. it relates to the corporate bribery offence under section 7 of the Bribery Act.  To date only individuals have been charged under the Bribery Act and had this issue not been resolved by way of DPA, it could have been one of the first cases to be prosecuted.  The case provides useful guidance on how the “associated person” test will be interpreted, albeit that this was a relatively straightforward case.  Because the Bank was a UK corporate, this case does not address the more complex question of when the SFO would have jurisdiction to prosecute a corporate which was not incorporated in the UK but carried on business or part of a business in the UK.  However, it is useful in that it suggests that the SFO (and ultimately, the court) will consider whether the corporate has adequate procedures in order to establish whether the offence was, in fact, triggered, rather than whether it offers the corporate a potential defence to an offence.  Paragraph 11 of the judgment suggests this inverse approach was taken by the SFO as part of the basis on which the DPA was negotiated. 
  2. it demonstrates the significant interaction between UK and foreign authorities.  On a national level, the Bank’s self-report to the SFO was made in conjunction with a SAR to the SOCA.  Perhaps the Bank considered the risk of reporting to the SOCA (as they were legally required to do under the Proceeds of Crime Act 2002, as a regulated entity), would likely result in the SFO investigating the issue in any event.  At an international level, the Tanzanian authorities, the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC) were also investigating, although according to the Bank’s press release, the DoJ has now closed its related inquiry into the transaction and, as noted by the Judge today, the SEC has concluded its investigation by agreeing a US $4.2 million penalty and the Tanzanian authorities have confirmed that they are aware of the terms of the DPA, including the compensation payment, and have no objections.
  3. it also requires the Bank going forward to cooperate “fully and honestly” with other prosecutors and any relevant Multilateral Development Bank, who may undertake their own investigations and impose their own sanctions beyond those already agreed with the SFO.  Therefore, while the DPA may be agreed, there may be further issues for the Bank in the future.

The DPA, statement of facts and judgment in this case can be accessed here.