Today Lord Justice Leveson approved in Southwark Crown Court (sitting at the Royal Courts of Justice) the first Deferred Prosecution Agreement ("DPA").
Standard Bank Plc (now known as ICBC Standard Bank Plc) was the subject of an indictment alleging the failure to prevent bribery contrary to section 7 of the Bribery Act 2010. The DPA proceedings were initiated by the Serious Fraud Office ("SFO") and have the effect of suspending the indictment. This was the first use of the section 7 offence by a prosecutor. The DPA provides that Standard Bank will pay financial orders totalling approximately USD 25 million, compensation of USD 7 million to the Government of Tanzania and the SFO's costs in the amount of £330,000.
The suspended indictment related to a payment of USD 6 million by Stanbic Bank Tanzania (a former sister company of Standard Bank), in March 2013, to a local partner in Tanzania, Enterprise Growth Market Advisors ("EGMA"). EGMA's chairman and one of its three shareholders and directors was an official within the Government of Tanzania at the relevant time. The SFO alleges that the USD 6 million payment was intended to induce members of the Government of Tanzania, to show favour to Stanbic Bank Tanzania and Standard Bank's proposal for a USD 600 million private placement to be carried out on behalf of the Government of Tanzania. EGMA received the USD 6 million via a bank account opened with Stanbic Bank Tanzania. The placement generated transaction fees of USD 8.4 million, shared by Stanbic Tanzania and Standard Bank. The USD 8.4 million profit was disgorged as part of the financial orders under the DPA.
The SFO has posted the DPA, the underlying statement of facts and Lord Justice Leveson's judgment online (links below).
The DPA is a reminder of the importance of an effective compliance program. The section 7 offence was introduced to make the prosecution of corporate bodies easier and avoid the prosecutorial pitfalls of the directing mind doctrine, under which a senior executive or executives must be considered to be the directing mind and will of a company for the purposes of establishing an offence. Section 7 instead means that a relevant commercial organisation ("RCO") is guilty of an offence if an associated person bribes another person intending to obtain or retain business or an advantage in the conduct of business for the RCO. It is a defence for the RCO to have in place adequate procedures designed to prevent persons associated with it from undertaking such conduct.
The DPA, the statement of facts and Lord Justice Leveson's judgment all make clear that Standard Bank's policies were inadequate for the purpose of preventing bribery. It is a term of the DPA that Standard Bank will undertake a review including the implementation of its existing internal controls, policies, and procedures regarding compliance with the Bribery Act 2010 and other applicable anti-corruption laws.
The deficiencies in the policies in place at the time and their implementation are set out at paragraphs 191 to 201 of the statement of facts. The issues which are flagged are familiar to Addleshaw Goddard and we often assist clients in remedying defects such as those outlined in the statement of facts, for example, the applicability of Standard Bank's Introducers and Consultants policy was unclear on the face of the policy and it was apparently not reinforced effectively to the deal team through communication and/or training.
Reading through the statement of facts, whilst some KYC looks to have been carried out, no anti-bribery due diligence was undertaken on EGMA. Clearly, whilst checks should not be siloed, there are key differences between the two types of checks and the information each provides. Employees need to understand when checks should be performed and what the information obtained means in the context of the particular transaction.
Difficulties with the policies in place and their application led to failures in Standard Bank's processes, such as:
- Standard Bank undertook no enhanced due diligence process to deal with the presence of any red flags regarding the involvement of a third party, EGMA, in a government transaction regarding a country that is considered high risk by a number of international bodies;
- Standard Bank failed to identify and deal adequately with the presence of a politically exposed person (a "PEP"); and
- No one within Standard Bank identified, documented or considered corruption red flags in the case.
The DPA emphasises the need for PEPs to be dealt with appropriately and follows fines by regulators for similar policy failings.
Many companies have put in place policies and procedures in an attempt to manage their exposure to both bribery and money laundering. However, the DPA emphasises the need for policies and procedures to not only be fit for purpose but also to be implemented appropriately. The DPA statement of facts contains excerpts of interviews conducted by the SFO with Standard Bank employees regarding the policies and the implementation of these policies. Companies will benefit enormously from policies and procedures being stress tested by a trusted adviser in order to establish whether they are fit for purpose and implemented appropriately. This is not an issue that a company will want explored by a regulator or prosecutor via interviews with employees, following a transaction of concern.