On 30 November 2015, the UK Serious Fraud Office (SFO) announced the first Deferred Prosecution Agreement (DPA) entered into between the SFO and ICBC Standard Bank Plc, approved by a judgment published by Lord Justice Leveson at Southwark Crown Court.
The Critical Facts
In 2012, the Government of Tanzania wished to raise funds by way of a sovereign note private placement. A subsidiary of Standard Bank Group Ltd, Stanbic Bank Tanzania Ltd (Stanbic) and another entity obtained the mandate to raise those funds. In the process, Stanbic entered into an agreement with a Tanzanian company as a local partner, Enterprise Growth Market Advisors Ltd (EGMA) whose majority directors and shareholders were senior Tanzanian officials. As part of the terms of the placement, the fee payable to Stanbic was increased from 1.4% to 2.4% and the extra 1% was to be paid to EGMA. There was no evidence of any services provided by EGMA. In due course, Stanbic paid EGMA the 1% fee, represented by the sum of US$6 million which was then withdrawn in cash. It was only by the large regular cash withdrawals that officers of Stanbic raised concerns which were escalated to Standard Bank head office in South Africa and London.
The Bank’s Response
Features of the how the Bank responded included:
- on or about 26 March 2013, Stanbic staff raised concerns as to cash withdrawals;
- on 2 April 2013, the Bank began an internal investigation;
- by 17 April 2013, the Bank’s office in London was informed and Jones Day were instructed to report the matter to the authorities;
- on 18 April 2013, Jones Day reported to the UK Serious and Organised Crime Agency and on 24 April 2013 to the SFO;
- on 21 July 2013 the Jones Day report with its findings was sent to the SFO;
- as a result of the review of the report and the SFO conducting its own investigation with interviews, the Director of the SFO commenced negotiations with the Bank for a DPA; and
- on 30 November 2015, the Court published its final judgment approving the DPA.
The Proposed Indictment
The SFO indictment relied upon the offence of a corporation failing to prevent bribery pursuant to section 7 of the Bribery Act. The particulars of the offence were alleged to be that the Bank failed to prevent Stanbic or officers of Stanbic from committing bribery in order to obtain or retain business or an advantage by promising 1% of the placement monies to EGMA in circumstances where no or no reasonable consideration was received for the payment and the payment of the 1% amount was intended by Stanbic to induce Tanzanian officials to favour the Bank in granting it the placement mandate.
The Court’s Findings on Conduct
The Bank and the SFO submitted a Statement of Agreed Facts to the Court which set out in detail the relevant facts. They are summarised in the preliminary judgment dated 4 November 2015. Key findings that come out of the judgment include the following:
- the Bank’s applicable anti-corruption policies were unclear and they failed to provide specific guidance about the role and obligations where a Bank entity engaged an introducer or consultant to a transaction;
- obvious red flags about financial transactions in high risk countries were ignored;
- the Bank’s internal team raised no questions about the role or EGMA and made no inquiries about EGMA, relying entirely on Stanbic to do that work, if at all;
- the Bank did not undertake any enhanced due diligence procedures when accounts were opened; and
- the Bank failed to identify and respond to the presence of politically exposed persons involved in the entities and the transaction where a third party was introduced and which charged a substantial fee.
The Court’s Judgment
The Court’s preliminary judgment dated 4 November 2015, published on 30 November 2015 provides the benchmark analysis of the DPA scheme and its application, particularly focusing on the sentencing issues and the assessment of the applicable penalty.
Key points to note from the judgment include the following:
- the Court assessed the reasons why the Director of the SFO was satisfied that it was in the interests of justice to conclude a DPA, noting that:
- the criminality involved a failure to prevent bribery arising out of inadequate compliance procedures;
- there was no evidence that any Bank officer knew the payment to EGMA was intended to be a bribe;
- the Bank adopted a genuinely proactive approach to reporting the conduct and cooperating with the authorities;
- the Bank disclosed information that would otherwise have in all likelihood have remained unknown to the authorities;
- the Bank’s internal senior management had changed since the conduct and there was no prior relevant history of criminal conduct;
- in considering the applicable compensation and penalty, the Court approved the earlier comments of Thomas LJ in R v Innospec (26 March 2010), and following the appropriate sentencing guidelines, was satisfied that the level of culpability determined by the SFO was at a medium level, later adjusted to the higher part of that category by the appropriate harm figure multiplier (a feature that does not exist under Australian sentencing principles);
- as with Innospec, the Court heard that the US DOJ confirmed the proposed penalties were in line with US likely penalties and if the DPA was approved, the DOJ would close its investigation; and
- in all the circumstances, the terms of the proposed DPA were approved.
The Terms of the DPA
The terms of the DPA set out the following substantive provisions:
- compensation (to the benefit of the Government of Tanzania) was fixed at US$6 million plus interest of US$1,046,196;
- the financial penalty was fixed at US16.8 million;
- the disgorged profit from the transaction was fixed at US$8,400,000;
- the SFO’s costs were fixed at £330,000;
- PricewaterhouseCoopers was appointed as monitor for 3 years (the term of the DPA);
- the Bank will continue to cooperate with the SFO and any other national or foreign agency;
- the Bank will implement a new anti-corruption internal compliance program; and
- assuming all terms are complied with, the indictment will be discontinued after its term expires.
Lessons from the Standard Bank DPA Case
This case demonstrated that even where an international finance company sought to act through subsidiaries in high risk countries, it cannot afford not to have its own or group anti-corruption policies having a proper role in the organisation’s structure and applied to every transaction. While the Court accepted there was no evidence of intentional criminal conduct on the part of the Bank, its lack of internal compliance policies and delegating compliance responsibilities to local subsidiaries in a high risk country were key weaknesses. Critically, the Court noted that much of the evidence may never have come to light to the authorities.
In Australia, where the AGD submission to the Senate Inquiry remained silent on the desirability of a DPA model in Australia yet notes that foreign bribery prosecutions are costly, time-consuming and take at least 7 years to complete, this judgment and the important messages it sends to business, has cogently pierced that silence. One can only conclude that if the Bank was located in Australia and chose not to volunteer the evidence to the Australian authorities as there is no DPA scheme in Australia to encourage the very conduct that the Court gave real credit towards, the position might have been very different.
The last words should be left to Lord Justice Leveson:
I add only this. 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 largescale 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. It can also serve to underline the enormous importance which is rightly attached to the culture of compliance with the highest ethical standards that is so essential to banking in this country.