In November 2015, anti-bribery enforcement and regulation in the United Kingdom entered a new era with the first UK Deferred Prosecution Agreement (“DPA”). The DPA, between the Serious Fraud Office (“SFO”), the UK’s leading prosecutor of bribery and other economic crimes, and UK-based ICBC Standard Bank plc, contains valuable lessons about both DPAs and the UK Bribery Act 2010 (the “Act”) for all companies operating, even to a limited extent, in the United Kingdom.1 Continued on page 2 Also in this issue: 21 The SEC’s Most-Recent Nudge to Self-Report: Will it Make a Difference? 26 The FCA Imposes £72 Million Financial Penalty on Barclays for Financial Crime Failings 30 Property Alliance Group Ltd v. Royal Bank of Scotland Plc Click here for an index of all FCPA Update articles If there are additional individuals within your organization who would like to receive FCPA Update, please email email@example.com or firstname.lastname@example.org 1. See Deferred Prosecution Agreement between the Director of the Serious Fraud Office and Standard Bank plc (now known as ICBC Standard Bank plc), Nov. 26, 2015 [hereinafter “DPA”]; Serious Fraud Office v Standard Bank Plc (now known as ICBC Standard Bank Plc) (Nov. 4, 2015) (Case No: U20150854) [hereinafter “Preliminary Judgment”]; Serious Fraud Office v Standard Bank Plc (now known as ICBC Standard Bank Plc) (Nov. 30, 2015) (Case No: U20150854) [hereinafter “Full Judgment”]; and the Statement of Facts in respect of Serious Fraud Office v Standard Bank Plc (now known as ICBC Standard Bank Plc [hereinafter “Statement of Facts”). www.debevoise.com FCPA Update 2 December 2015 Volume 7 Number 5 I. Background A. The Law DPAs have for years been a feature of criminal enforcement in the United States, but have not been used in other countries. The main reasons for this are concerns over the risks of sweetheart deals between prosecutors and companies and, relatedly, concerns that companies should not be allowed to buy their way out of criminal prosecution. At the same time, certain foreign prosecutors have noted with envy or admiration the ability of US prosecutors to use DPAs to achieve substantial negotiated settlements in circumstances where a traditional prosecution would be difficult. To provide this powerful tool to UK prosecutors, the UK government introduced DPAs into English law in February 2014.2 As with US DPAs, a UK DPA is an agreement whereby a prosecutor agrees to suspend and ultimately abandon prosecution in return for various actions from a company, typically including financial payments, cooperation and changes to systems and procedures. The UK DPA has one crucial difference from its older US cousin: the courts are much more involved. In the United States, at least until recently, courts have played a minor role in scrutinizing DPAs, and in any event do not become involved until late in the process.3 Under the UK’s DPA law, by contrast, court approval is required at least twice for every DPA – before terms are agreed in principle, and before a final agreement is approved – and the court is required to consider carefully whether a DPA is in the interests of justice, and to provide detailed reasoning. It would seem that, by this requirement, the UK government hoped to avoid the perceived problems of sweetheart deals and lenient treatment. At the same time, it is possible that the incentive for companies to enter into a DPA is diminished by the fear of having a settlement – including the settlement amount – scrutinized by a senior judge. Nonetheless, the fact that reasoned judgments are provided should be of great assistance to corporations: such judgments should provide practical and detailed guidance as to what the UK courts consider companies are required to do in order to be eligible for DPAs. The United Kingdom’s First Deferred Prosecution Agreement Continued from page 1 2. See “The Year 2014 in Anti-Bribery Enforcement: New Records, New Trends, and New Complexity as Anti-Bribery Enforcement Truly Goes Global,” FCPA Update (Jan. 2015, Volume 6, Number 6), http://www.debevoise.com/~/media/files/insights/publications/2015/01/fcpa_ update_ jan_2015.pdf. 3. See United States v. Saena Tech. Corp., 2015 WL 6406266 (D.D.C. Oct. 21, 2015); United States v. Fokker Servs. B.V., 79 F. Supp. 3d 160 (D.D.C. Feb. 5, 2015); United States v. HSBC Bank USA, NA, 2013 WL 3306161 (E.D.N.Y. July 1, 2013). Continued on page 3 www.debevoise.com FCPA Update 3 December 2015 Volume 7 Number 5 The United Kingdom’s First Deferred Prosecution Agreement Continued from page 2 This, the first published DPA, is valuable not only in that respect but also because it is the first significant court decision which deals in depth with the Bribery Act, including its novel corporate offence, and the new UK sentencing guideline for corporations. The judgment will provide assistance to companies in understanding their liabilities and responsibilities under the Act. B. The Facts4 The subject of the DPA is ICBC Standard Bank plc (“Standard Bank”), a joint venture between South Africa’s Standard Bank Group Ltd5 and the Industrial and Commercial Bank of China (“ICBC”) (although at the time of the relevant events ICBC held no interest in Standard Bank). Early in 2012, the government of Tanzania mandated Standard Bank and its sister company Stanbic Bank Tanzania Ltd (“Stanbic”), both part of the Standard Bank Group, to raise funds by way of a private placement. Standard Bank’s involvement was required because Stanbic was not licensed to deal with non-Tanzanian investors in the debt market. Standard Bank and Stanbic’s combined fee was 2.4%, 1% of which was to be paid to a Tanzanian company, Enterprise Global Market Advisors Limited (“EGMA”). EGMA had three shareholders, one of whom was the Commissioner of the Tanzania Revenue Authority and thus a foreign public official. There was no sign that EGMA provided any services in connection with the transaction. Standard Bank did not conduct due diligence or know-your customer (“KYC”) checks on EGMA, leaving those entirely to Stanbic. Standard Bank and Stanbic raised $600 million for the government. The two banks received a total fee of $14.4 million, $6 million of which was paid to EGMA into a Stanbic account in March 2013. Almost all that amount was withdrawn in significant cash tranches within 10 days, with the assistance of the Stanbic managers who had worked on the placement. The speed and nature of the withdrawals led Continued on page 4 “This, the first published DPA, is valuable not only in that respect but also because it is the first significant court decision which deals in depth with the Bribery Act, including its novel corporate offence, and the new UK sentencing guideline for corporations.” 4. See Preliminary Judgment, ¶¶ 8 – 23. 5. Not to be confused with the UK’s Standard Chartered Bank plc, an unrelated entity. www.debevoise.com FCPA Update 4 December 2015 Volume 7 Number 5 various staff members at Stanbic to make reports through compliance channels which were escalated to the Standard Bank Group’s head office in South Africa towards the end of March, after which the group acted quickly. The head office in South Africa began an internal investigation and informed Standard Bank in the United Kingdom sometime in the first half of April 2013. On 18 April 2013, before Standard Bank had even begun its own internal investigation, it reported the matter to the United Kingdom’s Serious and Organised Crime Agency (“SOCA”) (now known as the National Crime Agency (the “NCA”)), followed by a report to the SFO on 24 April 2013. Standard Bank agreed with the SFO that it would conduct its internal investigation and share the results with the SFO. Following the delivery of a written report by Standard Bank in July 2014, the SFO commenced its own investigation, concluding that Stanbic and/or some of its senior executives – all of which it considered to be associated persons of Standard Bank – had committed bribery by promising and/or giving EGMA $6 million in order to induce a representative or representatives of the Tanzanian government to show favour to Standard Bank and Stanbic in appointing them to run the private placement. It determined that the associated persons had caused the bribe to be paid in order to obtain or retain business or a business advantage for Standard Bank, thus engaging Standard Bank’s liability under section 7 of the Bribery Act – the socalled “corporate offence” – which makes it a crime for a commercial organisation to fail to prevent bribery by its associated persons. The SFO further concluded that Standard Bank lacked “adequate procedures” to prevent bribery and thus would not have a realistic prospect of raising that as a defence to the corporate offence. C. Terms of the DPA6 Standard Bank and the SFO agreed the following terms as part of the DPA, all of which were approved by the judge: 1. A fine of $16.8 million; 2. Disgorgement of $8.4 million; 3. Compensation of $6 million to be paid to the government of Tanzania; 4. Review and enhancement of Standard Bank’s corporate compliance programme; 5. Payment of the SFO’s costs; and 6. Continued cooperation with the SFO. We will analyse these terms – particularly the payments – in detail in this article. The United Kingdom’s First Deferred Prosecution Agreement Continued from page 3 Continued on page 5 6. See the DPA, ¶¶ 9 – 38. www.debevoise.com FCPA Update 5 December 2015 Volume 7 Number 5 II. Analysis A. Bribery Act While this is the first instance in which a court has considered the Bribery Act in relation to a significant case of corporate bribery involving a large financial institution, the admissible evidence gathered was not tested before a jury. Furthermore, the offence in question was the failure by Standard Bank to prevent bribery, which is prohibited by section 7 of the Bribery Act, a strict liability offence that does not require the prosecutor to establish any mental element on the part of the defendant organisation or its own employees. The judgments of Lord Justice Leveson therefore provide only indirect guidance into how the predicate bribery offences themselves will ultimately be tried in the UK courts. They provide more useful insight into the level of evidence sufficient for a DPA in respect of the corporate offence. 1. Relationship between the corporate offence and the underlying offence The corporate offence of failure to prevent bribery by an associated person is a derivative offence. That is, the charge cannot be established unless the prosecution can also prove that the associated person committed one of the underlying bribery offences. However, the prosecution does not need to secure a conviction for the underlying offence. Section 7(1) of the Act states that a commercial organisation is guilty of an offence if its associated person “bribes another person” while intending to obtain or retain business or a business advantage for the organisation. And section 7(3) of the Act states that, for the purposes of the corporate offence, an associated person “bribes another person” only if the associated person “is, or would be guilty” (emphasis added) of one of the underlying offences in the Bribery Act “whether or not [the associated person] has been prosecuted for such an offence” and regardless of whether the UK courts have jurisdiction over the associated person. That is, the corporate offence can be established even if there has been no conviction for the underlying offence and no such conviction is sought. So what must the prosecution show in terms of the underlying offence? This case answers the question in part. The United Kingdom’s First Deferred Prosecution Agreement Continued from page 4 Continued on page 6 www.debevoise.com FCPA Update 6 December 2015 Volume 7 Number 5 2. Underlying bribery offences There are two underlying offences in the Bribery Act that can engage section 7 corporate liability: bribing another person (section 1) and bribing a foreign public official (section 6). The SFO here concentrated solely on section 1, though arguably, given the involvement of the government of Tanzania and the Commissioner of the Tanzanian Tax Authority, section 6 might also have been available. The persons committing the bribery, according to the SFO, were Stanbic and/ or two of its most senior executives, Bashir Awale and Shose Sinare. The SFO alleged that they “promised or gave a financial advantage to EGMA intending that advantage to induce a representative of the [government of Tanzania] improperly to show favour to [Standard Bank] and [Stanbic] in appointing or retaining them for the purposes of the transaction.”7 This would constitute a bribe because, under section 1, bribing another consists of making a payment to induce (or reward) “improper performance” by another person. The SFO does not appear to have had access to the Stanbic executives, and those executives did not even cooperate with the internal investigation; the SFO received no documentation from EGMA or the government of Tanzania; and both the SFO and the court accepted that the Standard Bank employees knew nothing about any bribes. In other words, there was, perhaps unsurprisingly, no direct evidence available to the SFO and thus the judge to the effect that Stanbic or its executives paid a bribe. The circumstantial evidence and inferences it gave rise to were, nonetheless, substantial. The fact that one of EGMA’s shareholders, Mr. Kitilya, was, at the time of the transaction, acting Commissioner of the Tanzanian Tax Authority and thereby a serving member of the Tanzanian government, was, of itself, a significant red flag. There was no evidence that EGMA provided any actual services. Standard Bank was informed by Stanbic of the proposed involvement of a local Tanzanian partner only after the Tanzanian government had been informed. Once EGMA was retained, a previously slow moving transaction proceeded quickly. And after EGMA was paid $6 million, it promptly withdrew most of that amount in cash. These factors led the judge to conclude that the “only inference”8 to be drawn was that Stanbic’s senior executives intended EGMA’s 1% fee to induce Mr Kitilya (and possibly others) to show favour to Stanbic and Standard Bank’s proposal. Whether this was overstating the matter, no other evidence was put forward (or possibly capable of being put forward) to explain the arrangement, and the strength of the suspicions it gave rise to justified the judge’s conclusion in a DPA context. Had the The United Kingdom’s First Deferred Prosecution Agreement Continued from page 5 Continued on page 7 7. See Statement of Facts ¶ 202. 8. See Preliminary Judgment, ¶ 11. www.debevoise.com FCPA Update 7 December 2015 Volume 7 Number 5 section 7 offence been tried before a jury, it is less certain that circumstantial evidence alone would have sufficed to establish the underlying bribery offence to the standard required by section 7. The fact that circumstantial evidence as to the actions of “associated persons” alone may suffice to make out the underlying bribery offence and thus trigger section 7 liability is, of course, an important wake-up call to all companies subject to the Bribery Act that engage third parties in their global operations. 3. Failure to Prevent Bribery Once the underlying offence by an associated person is established, the corporate offence is automatically made out, unless the defence of adequate procedures can be shown (discussed below). In that sense, therefore, the “failure” in “failure to prevent bribery” is an act of omission, rather than commission. Nonetheless, it is worth going through exactly how Standard Bank failed here: other companies can certainly learn from its mistakes. It is first worth reiterating that it is no part of the corporate offence that any employee at the commercial organisation had corrupt intent. Lord Justice Leveson underlined that “no allegation of knowing participation in an offence of bribery is alleged either against Standard Bank or any of its employees; the offence is limited to an allegation of inadequate systems to prevent associated persons from committing an offence of bribery.”9 Though Standard Bank was acting jointly with Stanbic on the transaction, there was no evidence that the Standard Bank deal team itself interacted directly with EGMA or knew anything about it. There was also a lack of communication between Standard Bank and Stanbic in relation to the engagement of EGMA. Yet this lack of The United Kingdom’s First Deferred Prosecution Agreement Continued from page 6 Continued on page 8 “The fact that circumstantial evidence as to the actions of ‘associated persons’ alone may suffice to make out the underlying bribery offence and thus trigger section 7 liability is, of course, an important wake-up call to all companies subject to the Bribery Act that engage third parties in their global operations.” 9. See Full Judgment, ¶ 11. A similar message was stated at Preliminary Judgment, ¶ 46. www.debevoise.com FCPA Update 8 December 2015 Volume 7 Number 5 action, it appears, is what got Standard Bank into trouble; if it had communicated or interacted more with its counterparts, the problem might have been ended before it began. Florian von Hartig, the Standard Bank deal team leader (who was the only Standard Bank team member to be named in the DPA papers), stated to the SFO that Standard Bank had “no contact”10 with EGMA. The SFO’s interviews revealed that the “deal team members did not even share a common understanding about the basis for EGMA’s involvement.”11 Furthermore, Mr. von Hartig was held to have interpreted Standard Bank’s compliance policies – about which the judge said there was common ground that they were “unclear and did not provide sufficient specific guidance”12 – as not requiring any enquiry into EGMA. Therefore, in spite of the “obvious red flags”13 surrounding EGMA’s involvement, the Standard Bank deal team relied entirely upon Stanbic to make appropriate enquiries and raise any concerns, raising none themselves. Significantly, Mr. von Hartig set out in an email to his team that Stanbic was responsible for KYC checks on EGMA and that no shortcuts would ever be acceptable.14 By implication, Standard Bank did not need to conduct any KYC checks – and indeed, it did not. Standard Bank’s failure to have any meaningful role in vetting the EGMA involvement looks irresponsible at the least given the questions that presented themselves on any view of the transaction. At worst, it could be construed as a demonstration of wilful blindness, but it was not necessary for the SFO to prove wilful blindness, and nowhere in the Statement of Facts or the DPA does it state that anyone at Standard Bank “must have known” that there was something suspicious going on. It is the failure alone to prevent the underlying bribery that makes Standard Bank criminally liable. 4. Adequate procedures In this case, the SFO alleged, and Lord Justice Leveson agreed, that the material disclosed was insufficient to enable Standard Bank to rely on the defence of adequate procedures, as per section 7(2) of the Act. It is clear from the evidence presented that Standard Bank’s procedures were hefty and voluminous – but they were not “adequate,” as summarised by the judge: The United Kingdom’s First Deferred Prosecution Agreement Continued from page 7 Continued on page 9 10. See Statement of Facts, ¶ 32. 11. Id., ¶ 151. 12. See Preliminary Judgment, ¶ 14. 13. See Statement of Facts, ¶ 154. 14. Id. at ¶ 156. www.debevoise.com FCPA Update 9 December 2015 Volume 7 Number 5 The applicable policy was unclear and was not reinforced effectively to the Standard Bank deal team through communication and/or training. In particular, Standard Bank’s training did not provide sufficient guidance about relevant obligations and procedures where two entities within the Standard Bank Group were involved in a transaction and the other Standard Bank entity engaged an introducer or a consultant. In the event, Standard Bank engaged as joint lead manager with Stanbic in a transaction with the government of a high risk country in which a third party received US $6 million with the protection of only KYC checks relevant to opening a bank account. The checks in relation to that third party were conducted by Stanbic, a sister company in respect of which Standard Bank had no interest, oversight, control or involvement. It did not undertake enhanced due diligence processes to deal with the presence of any corruption red flags regarding the involvement of a third party in a government transaction, relating to a high risk country. There were also failings in terms in not identifying the presence of politically exposed persons and not addressing the arrival of a third party charging a substantial fee. In essence, an anticorruption culture was not effectively demonstrated within Standard Bank as regards the transaction at issue.15 The Statement of Facts notes various ways in which the procedures were inadequate, or implemented inadequately. For example, Standard Bank was satisfied with confirmation from Stanbic that its KYC checks on EGMA had been completed, having been provided with a two-page checklist from Stanbic of its KYC steps.16 While that KYC form appeared to have acknowledged the account opening as high risk, it was unclear on what basis this assessment had been reached and, crucially, this categorisation was missed by the Standard Bank deal team. A combination of inadequate internal policies, poor training and communication, and a lack of coordination between group entities, meant that Standard Bank’s policies and procedures – and, importantly, the way they were implemented – were inadequate for the risks the bank faced, especially in more high-risk jurisdictions. Group compliance/AML procedures are clearly inadequate if they create a situation in which relevant information about a local third party partner is not shared between all group companies involved in the transaction in respect of which the local partner is retained. Continued on page 10 The United Kingdom’s First Deferred Prosecution Agreement Continued from page 8 15. See Preliminary Judgment, ¶¶ 20 – 21. 16. See Statement of Facts, ¶¶ 155 – 62. www.debevoise.com FCPA Update 10 December 2015 Volume 7 Number 5 Group-wide policies should also clearly state that responsibility for ensuring that all third party dealings are ethical and lawful lies with all group employees working on a mandate. In an era in which multinational sales and deal teams frequently work on cross-border matters and across various group entities, the expectation within businesses must be that teams, and especially senior managers, each ensure that appropriate, ongoing checks are made as to the manner in which business is generated. 5. Associated person This case is the first to give some meaning to what is and is not an associated person. Under the Bribery Act, an associated person of a commercial organisation is one “who performs services for or on behalf of ” that organisation,17 which is to be determined “by reference to all the relevant circumstances and not merely by reference to the nature of the relationship” between the relevant parties.18 Section 8(3) of the Bribery Act provides some examples of who can be an associated person: an employee, agent or subsidiary. But that list is non-exhaustive, and, it is now clear from the DPA, merely illustrative: the concept of an associated person has a broad application. Stanbic’s Mr. Awale and Ms. Sinare, who between them liaised with EGMA, were alleged by the SFO19 to have been performing services on behalf of Standard Bank and therefore to be Standard Bank’s associated persons – a conclusion neither Standard Bank nor the judge disagreed with. This may seem strange at first sight, and an unwarranted expansion of the set of people whose actions can lead to liability for a company: these two individuals, employees of a Tanzanian company, were found to be associated persons of a British bank that was not the Tanzanian company’s parent or subsidiary. Indeed, The United Kingdom’s First Deferred Prosecution Agreement Continued from page 9 Continued on page 11 “In an era in which multinational sales and deal teams frequently work on cross-border matters and across various group entities, the expectation within businesses must be that teams, and especially senior managers, each ensure that appropriate, ongoing checks are made as to the manner in which business is generated.” 17. See Bribery Act 2010 [hereinafter “Bribery Act”], § 8(1). 18. Id. at § 8(4). 19. Their seniority within Stanbic actually meant that corporate liability attached to Stanbic itself. www.debevoise.com FCPA Update 11 December 2015 Volume 7 Number 5 Stanbic was variously described by the judge as “a sister company the management of which is unconnected to [Standard Bank]”20 and an entity “in respect of which Standard Bank had no interest, oversight, control or involvement.”21 Yet a review of the facts shows that the conclusion is less surprising, and there is real sense in holding Standard Bank liable for actions of the Stanbic employees. First, it was common ground between Standard Bank and the SFO, based principally on the mandate documentation signed with the Tanzanian government, that Standard Bank and Stanbic “were acting jointly and on behalf of one another in respect of arranging this transaction.”22 That is, the two companies were partners, each assisting the other. Further factors supporting the position of Stanbic and its two senior executives as associated persons were described as follows: • Standard Bank and Stanbic were the “lead manager” under the mandate letter with the Tanzanian government; • Their fees for acting as lead manager were split 50/50; • They carried out different but complementary roles within the transaction with Standard Bank providing the technical expertise and Stanbic maintaining the client relationship; • Members of both deal teams liaised closely with one another about the transaction; • Standard Bank was responsible for much of the contractual drafting and had a significant level of control over the overall structure of the deal; and • The fee letter they both signed stated that both were acting in collaboration with EGMA.23 This was held to be enough to render Stanbic and its executives associated persons of Standard Bank. Following this judgment, it should be understood that where affiliates in the same group are jointly involved in transactions and fulfilling different roles, they will not be able to hide behind corporate structures to avoid liability. If the affiliates are working on a common endeavour and ultimately sharing the fees earned, the acts of one will be attributed to those of the other and engage its liability. The United Kingdom’s First Deferred Prosecution Agreement Continued from page 10 Continued on page 12 20. See Preliminary Judgment, ¶ 26. 21. Id. at ¶ 21. 22. See Statement of Facts, ¶ 127. 23. Id. at ¶ 129. www.debevoise.com FCPA Update 12 December 2015 Volume 7 Number 5 Indeed, there is no reason why the conclusion needs to be limited to affiliates of the same group: where two companies are in a joint venture, it is a consequence of this judgment that the employees of one company acting on behalf of both members of the joint venture may thereby become the associated person of both parties.24 The policy reason for this result is equally clear: the corporate offence of the Bribery Act was set up in a way to overcome the problems of companies hiding behind their lack of responsibility for far-flung agents (and even employees); the Act makes this clear by referring to the primacy of “all the relevant circumstances” in determining who is an associated person. Clearly, where a company benefits from the actions of a co-venturer – as Standard Bank did in jointly winning the mandate – it should be held responsible if that co-venturer engages in bribery in the pursuit of the joint mandate. The same considerations appear to have driven the conclusion on the other element of the associated person test, namely that the associated person must have paid the bribe in order to benefit the commercial organisation that is subject to section 7 liability. B. Sentencing Guidelines The disposition of the DPA is particularly important from the point of view of sentencing. By contrast with the United States, where centrally mandated sentencing guidelines, with their ranges and permutations, have been a recognised feature of the law for some time, the UK sentencing regime has remained mostly ad hoc and based on individual precedent, not statute. Last year, however, the United Kingdom’s Sentencing Council introduced the first ever sentencing guideline for fraud, bribery and money laundering by corporate offenders.25 The guideline requires courts to apply a multi-step process that includes, in addition to a fine, compensation, confiscation and various “adjustments.” Significantly, the guidelines must be applied in the same way in DPAs and contested prosecutions. Continued on page 13 24. Interestingly, the Ministry of Justice’s 2011 Guidance on the Bribery Act contained an extended discussion about associated persons and joint ventures, at paragraphs 40 – 42, yet the discussion was not referred to (or apparently applied) by the court. 25. See ‘Corporate Offenders: Fraud, Bribery and Money Laundering,’ Fraud, Bribery and Money Laundering Offences, Definitive Guideline (Oct. 1, 2014), https://www.sentencingcouncil.org.uk/wp-content/uploads/Fraud_bribery_and_money_laundering_offences_-_ Definitive_guideline.pdf [hereinafter “Guidelines”]. The United Kingdom’s First Deferred Prosecution Agreement Continued from page 11 www.debevoise.com FCPA Update 13 December 2015 Volume 7 Number 5 On paper, the guidelines promised a much harsher sentencing regime in the United Kingdom than before. This case – the first application of the guidelines – has confirmed that promise. At least in the United Kingdom, an era of more US-style financial penalties is coming to pass. It is worth going through each step applied by the judge and then “stepping back,” much as the guidelines invite the court do so when adjusting the fine.26 The first stage is compensation.27 In that respect, the court considered that the $6 million apparently paid in a bribe constituted overpayment by the Tanzanian government. The original structure of the deal would have required that the government pay only $8.4 million; once EGMA was brought in as a local partner, the government agreed to pay $14.4 million. Accordingly, the judge saw that $6 million (plus interest of more than $1 million) as “the loss suffered” by the government. This money will therefore be paid to the Tanzanian government.28 One can see the logic to this decision, which also establishes the principle that any money paid by a government (or commercial customer) which is used to bribe a government official, is a loss to that government and should be compensated. The second stage is confiscation29 or, as described by the judge, “disgorgement of profit.” The court ordered that Standard Bank disgorge $8.4 million, being the entire fee earned by Standard Bank and Stanbic. This is more open to challenge than the compensation figure. First, the $8.4 million is the sum paid to both companies – Standard Bank in fact was paid only $4.2 million, with Stanbic receiving the remainder. One could argue that $4.2 million was the more appropriate figure. Second, no allowance was made for Standard Bank’s costs, so disgorgement of profits looks like disgorgement of revenue. (We shall return to this below.) However it may not be entirely fair to criticise the judge for using those figures: this amount was actually “the proposal” of Standard Bank and the SFO, which the judge did not disturb. This is one of a number of indications that courts are more likely to police the terms of a DPA for excessive leniency than for excessive rigour. Continued on page 14 The United Kingdom’s First Deferred Prosecution Agreement Continued from page 12 26. Id., “Step Five,” page 52. 27. See Preliminary Judgment, ¶¶ 39 – 41. 28. This is not the first time the Tanzanian government has benefitted from an agreed UK settlement. In the BAE case, BAE paid just under £30 million to Tanzania, in lieu of a fine. 29. See Preliminary Judgment, ¶ 42. www.debevoise.com FCPA Update 14 December 2015 Volume 7 Number 5 Future companies negotiating a DPA should try to limit confiscation to the profit they actually earned, but prosecutors will certainly be emboldened by this precedent to seek more than that. The third stage is the important one of setting the financial penalty.30 The guidelines calculate this, in the American style, by multiplying harm by culpability. For bribery offences, harm is normally defined as “the gross profit from the contract obtained, retained or sought as result of the offending.”31 Culpability is characterized as either low, medium or high, depending on the characteristics of the offence. It is then further adjusted by mitigating and aggravating factors to reach a final multiplier of the harm, which can be between 20% and 400%. The most significant question was what Standard Bank’s culpability would be. In this case, because government officials were involved – and even though the charge was one of failing to prevent bribery and the judge accepted that the evidence did not reveal any intention or knowledge of bribery on the part of Standard Bank executives or employees – the judge thought culpability should be somewhere between the medium end of the high range and the high end of the medium range. He accepted the SFO’s choice of the latter. This view put the multiplier around 300%, which was then multiplied by the gross profit. As with confiscation, the gross profit was taken to be the $8.4 million earned by both banks, again without taking any account of costs, for a figure of $25.2 million. The judge was then required to “step back”32 and assess whether the total level of sentence was reasonable. He concluded that it was reasonable (unsurprisingly, since it had been agreed by the parties). He then, as mandated by the guideline, applied Continued on page 15 The United Kingdom’s First Deferred Prosecution Agreement Continued from page 13 “Future companies negotiating a DPA should try to limit confiscation to the profit they actually earned, but prosecutors will certainly be emboldened by this precedent to seek more than that.” 30. Id. at ¶¶ 43 – 58. 31. See Guidelines, page 49. 32. See Preliminary Judgment, ¶ 53. www.debevoise.com FCPA Update 15 December 2015 Volume 7 Number 5 a reduction for pleading guilty,33 since Standard Bank’s reporting and cooperation amounted to such a plea. This took one-third off the financial penalty only, reducing it to $16.8 million. In total, therefore, Standard Bank earned $4.2 million in fees, from which it would have to deduct overhead and other costs – and agreed to pay out more than $32 million (including the SFO’s costs).34 One has to wonder if it was worth it, and if Standard Bank could have achieved a lower penalty by contesting the matter, particularly the SFO’s calculation of gross profit. Clearly, the high financial cost was the price Standard Bank was prepared to pay to resolve the matter without a conviction. Other companies may not be so willing, especially those in industries where the difference between revenues and profits may be more significant than it is for banks. Indeed, because the penalty assessed under a DPA is supposed to be the same as would be awarded following a plea of guilty following a prosecution, the DPA’s sentencing regime does not seem to afford cooperating companies any financial advantage or incentive. The SFO’s joint head of bribery and corruption, Ben Morgan, agreed with this in a magazine interview,35 pointing to what he saw as the non-financial incentives of speed, lower costs and reputation. Companies will also be concerned by how quickly the judge decided that Standard Bank’s actions merited high culpability, in a case involving only the corporate offence and not active bribery. Indeed, his initial view was more stringent than the SFO, which recommended only medium culpability, at the high end of the range. The wrongdoing in this case may have been more apparent than in many other cases, so future breaches of the corporate offence may receive a lower level of culpability. But companies considering reporting or accepting active involvement in bribery, not just a breach of the corporate offence, should be aware that the starting point will be high culpability, and probably the high end thereof – if, that is, a DPA is even available to them. We discuss this in the next section. The United Kingdom’s First Deferred Prosecution Agreement Continued from page 14 Continued on page 16 33. Id. at ¶ 57. 34. It may be argued that assessing a fine, and compensation, and confiscation, is unfair triple-dipping. However, that is embedded in the relevant statutory schemes, so is clearly the will of Parliament. 35. See Rahul Rose, “Asking US about foreign bribery fines is the ‘new norm’, SFO corruption head says,” Global Investigations Review (Dec. 3, 2015), http://globalinvestigationsreview.com/article/4705/asking-us-foreign-bribery-fines-new-norm-sfo-corruption-head-says. www.debevoise.com FCPA Update 16 December 2015 Volume 7 Number 5 36. See Criminal Procedure Rules 2015, 11.3(3)(i)(i). 37. See Crime and Courts Act 2013, Schedule 17, §§ 8(3) and 7(2). 38. See DPA Code, ¶ 1.2(ii). 39. See Preliminary Judgment, ¶ 25 (emphasis added). 40. Id. at ¶ 26. C. Eligibility for a DPA This case provides the first answer to the important question: what must a company do to get a DPA? Part of the answer lies in a company’s power: self-report and show exemplary cooperation. But the remaining requirements may not be so simple, as they appear to depend on the offence that was committed in the first place. 1. Seriousness of the offence A key part of the DPA regime is that while it is for the prosecutor to decide whether to negotiate a DPA with a defendant, it is for the court to decide whether to approve a DPA, having reviewed the prosecutor’s application. The prosecution must explain why entering into the DPA would be in the “interests of justice,”36 and the court must make a declaration that entering the DPA would indeed be in the interests of justice.37 The prosecutors themselves must consider whether entering a DPA would be in the “public interest.”38 The tests may be subtly different. In its application in this case, the SFO presented the judge with a number of factors. In considering these factors and setting out the interests of justice test, the judge stated: “The first consideration must be the seriousness of the conduct for the more serious the offence, the more likely it is that prosecution will be required in the public interest and the less likely it is that the a DPA will be in the interests of justice.”39 Applying this principle to the facts, the judge made much of the fact that the evidence did “not demonstrate with the appropriate cogency that anyone within Standard Bank knew that two senior executives of Stanbic intended the payment to constitute a bribe, or so intended it themselves.”40 This is fortunate for Standard Bank, but it creates an unpleasant prospect for companies accused of an active bribery offence, especially where executives of the company did have such knowledge. Are DPAs available to them? Similarly, this case concerned a single isolated incident. In the United States, alleged multiple bribery violations by a number of subsidiaries at a corporate group Continued on page 17 The United Kingdom’s First Deferred Prosecution Agreement Continued from page 15 www.debevoise.com FCPA Update 17 December 2015 Volume 7 Number 5 41. See, e.g., DOJ Press Rel. No. 11-446, “Johnson and Johnson Agrees to Pay $21.4 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act and Oil-for-Food Investigations” (Apr. 11, 2011), http://www.justice.gov/opa/pr/johnson-johnson-agrees-pay-214-millioncriminal-penalty-resolve-foreign-corrupt-practices-act. are not necessarily an impediment to a DPA.41 But given the facts of this case, and the judge’s stance, one has to wonder if a company accused of multiple acts of bribery over a number of years could ever receive a DPA in the United Kingdom. These questions remain unanswered for now. The judge’s opinion means that where the offences are serious, at a high level, widespread, or repeated, it may be an uphill task to convince the court that a DPA is in the interests of justice. As prosecutors will not want their proposed DPAs rejected by the court, they too will need convincing. 2. Cooperation There is nothing companies can do to change the past. But once they uncover issues, their actions are in their own hands. And if they want DPAs as a means of resolving a matter involving legally prohibited conduct, it is clear both from the DPA Code and from this case that they will need to take very seriously the task of cooperating with the prosecutors. Standard Bank’s cooperation was exemplary in this case, from start to finish. It self-reported almost immediately, before it had even begun fully to have investigated the matter. It coordinated the scope and nature of its own investigation with the SFO, provided a report and then cleared the field for the SFO to conduct its own investigation. The extent of the cooperation was described by the judge: Furthermore, co-operation includes identifying relevant witnesses, disclosing their accounts and the documents shown to them: see para. 2.8.2 (i) of the DPA Code of Practice. Where practicable it will involve making witnesses available for interview when requested. In this regard, Standard Bank fully cooperated with the SFO from the earliest possible date by, among other things, providing a summary of first accounts of interviewees, facilitating the interviews of current employees, providing timely and complete responses to requests for information and material and providing access to its document Continued on page 18 “The judge’s opinion means that where the offences are serious, at a high level, widespread, or repeated, it may be an uphill task to convince the court that a DPA is in the interests of justice.” The United Kingdom’s First Deferred Prosecution Agreement Continued from page 16 www.debevoise.com FCPA Update 18 December 2015 Volume 7 Number 5 42. See Preliminary Judgment, ¶ 30. 43. See, e.g.,the speech by Ben Morgan, Joint Head of Bribery and Corruption at the Serious Fraud Office, “Deferred Prosecution Agreements: What Do We Know So Far?” (July 1, 2014), http://www.sfo.gov.uk/about-us/our-views/other-speeches/speeches-2014/ben-morganspeech-to-uk-aerospace-and-defence-industry-seminar-.aspx. 44. See Morgan, note 34, supra; see also Preliminary Judgment, ¶ 30. 45. See Proceeds of Crime Act 2002, § 330. 46. SOCA/the NCA will inform the SFO of SARs that report suspicions of bribery, so it is foolish to make such a report to SOCA/the NCA without telling the SFO too. review platform. The Bank has agreed to continue to cooperate fully and truthfully with the SFO and any other agency or authority, domestic or foreign, as directed by the SFO, in any and all matters relating to the conduct which is the subject matter of the present DPA. Suffice to say, this selfreporting and cooperation militates very much in favour of finding that a DPA is likely to be in the interests of justice.42 This sets the bar high for other companies – but at least they now know what they need to do. There are a number of points of interest. First, the judge was silent about privilege. This is significant because SFO officials have in recent years accused companies of standing behind unjustified claims of privilege, and have intimated that waivers might be necessary.43 The judge’s silence will keep this issue alive, although in one area of potential dispute his words may have some effect. One aspect of Standard Bank’s cooperation that he praised was the provision of a “summary of first accounts of interviewees”; much may depend on the precise meaning of the word “summary” but his words may indicate that the SFO will need to be content with summaries, rather than, as they have often asked for, the actual memoranda produced by company counsel as part of their investigation.44 There is also an interesting question as to the background to Standard Bank’s decision to self-report. The SFO and the court both accepted Standard Bank’s early self-report as a high point of cooperation. However, as noted, Standard Bank first reported not to the SFO but, one week before, to SOCA. Under the UK’s Proceeds of Crime Act 2002, banks and other regulated companies have an affirmative obligation to report suspicions of money-laundering to SOCA/the NCA, through so-called Suspicious Activity Reports (“SARs”); failure to do so is in fact a criminal offence.45 Standard Bank’s self-report was thus likely driven, in no small part, by the affirmative reporting obligation that it was under in any event to raise the issues with SOCA/NCA.46 This point is not expressly dealt with in the judgment. Continued on page 19 The United Kingdom’s First Deferred Prosecution Agreement Continued from page 17 www.debevoise.com FCPA Update 19 December 2015 Volume 7 Number 5 47. See Preliminary Judgment, ¶ 58. 3. The process The case has also given some interesting pointers to the process the SFO and the courts are expected to take. In particular, while DPAs require at least two hearings before the court – first private, later public – there will not necessarily be much time between them. In this case, the application ahead of the first hearing was lodged on 4 November; the second hearing took place on 30 November: less than four weeks between the two. It is clear that the SFO will not want to go to the court until it has prepared not just its proposal for a DPA, but also all of the DPA’s terms as well. III. Conclusion For better or worse, the Americanisation of law enforcement is continuing, at least so far as the United Kingdom is concerned. Far-reaching anti-corruption laws, sentencing guidelines that require calculators, DPAs – all these American imports are forming a greater part of English law. This point was brought home all the more clearly by the judge, when he said that part of his “stepping back” exercise in assessing the penalty was not only to ask himself what would the DoJ do – but actually to ask them. The DoJ stated that the penalty he proposed was the same as what would have been imposed had the matter been dealt with in the United States, and “intimated” that they would close their own inquiry if it was resolved in the United Kingdom.47 This “useful check” of the US authorities’ thinking is sure to become a part of corporate sentencing from now on. Companies have often complained that they are treated inconsistently by authorities in different jurisdictions; that complaint may be answered, though not in a way they wanted. Also, it was not entirely the case that the US authorities dropped their interest in the matter: the US Securities and Exchange Commission reached an agreed civil penalty with Standard Bank of $4.2 million for failing to disclose the $6 million paid to EGMA to American investors participating in the private placement. Finally, in this article, we have tried to answer two questions that any company faced with a bribery or related problem will be asking itself. First, is a DPA advisable? Second, is it even achievable? In trying to answer these questions, we must remember that this is just a single case and, which is worth repeating, that it is the first case to start grappling with what a DPA is or should be. At least one other DPA is said to be in the works as of this writing, and more are to follow – so there will be more data points over time. But some preliminary answers are emerging. Continued on page 20 The United Kingdom’s First Deferred Prosecution Agreement Continued from page 18 www.debevoise.com FCPA Update 20 December 2015 Volume 7 Number 5 Whether entering a DPA is advisable will obviously be a decision that will rely a great deal on the facts of any particular case. There may be little financial incentive to do so. But the SFO’s points about time, costs and reputation bear considering, particularly in situations in which a corporate offence, with its relatively low burden of proof, is to be charged. As to whether a DPA is advisable, much will – obviously – depend on the judge. Lord Justice Leveson, who it appears will remain active in this sphere for a while, has made clear that he considers that, taking the interests of justice into account, DPAs should be available only exceptionally, thus raising the question whether they would be available at all in cases of active corporate bribery (rather than the derivative corporate offence). Any such narrow conclusion would place an extraordinary, and unintended, limitation on the scope of UK DPAs. Nonetheless, further judicial pronouncements are required before this question can be answered with any confidence. Karolos Seeger Matthew Getz Alex Parker Karolos Seeger is a partner, and Matthew Getz and Alex Parker are international counsel, in the London office. They are members of the Litigation Department and the White Collar Litigation Practice Group. The authors may be reached at email@example.com, firstname.lastname@example.org, and email@example.com. Full contact details for each author are available at www.debevoise.com.
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The United Kingdom’s First Deferred Prosecution Agreement
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