The Head of the Serious Fraud Office, David Green QC, has announced that the Serious Fraud Office’s (SFO) first application for a Deferred Prosecution Agreement (DPA) was approved by Lord Justice Leveson at Southwark Crown Court on Monday, 30 November 2015.
The concept of a “deferred prosecution” was introduced in the United States and, in a (radically) different form, has been adopted here, pursuant to Section 45 and Schedule 17 of the Crime and Courts Act 2013 (“the 2013 Act”).
A key feature of the deferred prosecution scheme under the 2013 Act is the requirement that the Court examines the details of any proposed agreement, to ensure that the statutory conditions are satisfied. The statutory scheme under the 2013 Act is a two stage process:
Stage 1: following commencement of negotiations to try and obtain a DPA, there must be a preliminary hearing, held in private, for the purposes of ascertaining whether the Court will declare that the proposed DPA is “likely” to be “in the interests of justice” and its terms are “fair, reasonable and proportionate” – the provisional approval stage. The Court must give reasons for its provisional approval and if a declaration is declined, a further application is permitted.
Stage 2: having got through Stage 1 and having received provisional approval, it is for the Prosecutor to apply to the Crown Court for a declaration, made in open Court, that the DPA is in the interests of justice and that its terms are fair, reasonable and proportionate.
Accordingly, and in contradistinction with DPAs obtainable in the United States, DPAs under the 2013 Act are subject to the scrutiny and discretion of the Crown Court; they are not “private” arrangements made between the Prosecuting Authority and the reporting party (usually the company guilty of bribery, corruption and/or other criminal conduct).
The First DPA Approved under the 2013 Act
Standard Bank Plc, now known as ICBC Standard Bank Plc (Standard Bank), has become the first counterparty to an approved DPA under the 2013 Act, having self-reported to the Serious & Organised Crime Agency and the SFO, evidence to show that it had failed to prevent bribery in breach of its obligations under Section 7 of the Bribery Act 2010 – the requirement that corporates must have adequate procedures to prevent bribery.
Facts – as summarised in the Approved Judgment and Indictment
Standard Bank were given a mandate to raise US$600m on behalf of the Government of Tanzania. Pursuant to this mandate, Standard Bank’s subsidiary in Tanzania, Stanbic, entered into an agreement with a Tanzanian company called Enterprise Growth Market Advisors Limited (EGMA). Two of the three directors of EGMA were the Commissioner of the Tanzanian Revenue Authority (therefore a Government Official) and the former CEO of the Tanzanian Capital Markets & Securities Authority. Standard Bank made no enquiries about EGMA; it relied on its subsidiary, Stanbic, to carry out all the due diligence processes (even though the business was being done in a high risk country).
EGMA were paid a fee of 1% of the funds raised; the fee being paid into an account that EGMA opened with Stanbic. Almost all of the money was withdrawn from the account in cash and it is this that caused alarm bells to ring at Standard Bank. They immediately instructed a law firm to investigate and the matter was reported to the Prosecuting Authorities within three weeks. Standard Bank found that EGMA provided no services and/or consideration for the fee of US$6m that it received.
The indictment faced by Standard Bank alleged that the fee paid to EGMA was intended to induce representatives of the Government of Tanzania to perform a “relevant function or activity “improperly”, namely, showing Standard Bank and its Tanzanian subsidiary, Stanbic, favour in the process of appointing or retaining them in order to raise funds for the Government.
Terms of the DPA
The Crown Court’s judgment approving the DPA was given on 30 November 2015. The terms of the DPA include:
an obligation of continued cooperation with Prosecuting Authorities in the UK and elsewhere in relation to the matter summarised above;
a disclosure obligation in relation to any relevant documents that subsequently come to light;
the payment of compensation in the sum of US$6m plus interest (assessed at US$1,046,200 odd);
an agreement not to seek any tax reduction in the UK or elsewhere (i.e. not to offset the compensation and interest against corporation tax);
disgorgement of profits in the sum of US$8,400,000;
a financial penalty in the sum of US$16,800,000;
payment of the SFO’s costs in the sum of £330,000;
an obligation to commission an independent report, to be completed within six months from 30 November 2015, the scope of which to be agreed by PWC LLP and the SFO on the Bank’s anti-bribery and corruption policies and their implementation. The report to include advice or recommendations on:
third party intermediaries;
anti-bribery and corruption training;
the effectiveness of the anti-bribery; and
corruption training provided and the level of anti-bribery and corruption awareness raised amongst employees.
within 12 months of the date of the final independent report and to the satisfaction of the Independent Reviewer, implement the advice or recommendations contained in the independent report;
permit PWC LLP access to any such material they request in order to collect relevant information and fulfil their function;
require PWC LLP to cooperate generally with the SFO as requested by it and to provide the SFO with a copy of reports immediately on completion, notify the SFO where requested of Standard Bank’s progress in implementing the recommendations of the Independent Reviewer and confirm to the SFO Standard Bank’s compliance with paragraph 10 above;
the ultimate responsibility for identifying, assessing and addressing risks remains with the Board of Directors of Standard Bank; and
the deferred period is for 3 years so that, subject to the Bank’s compliance with the DPA, the indictment will be withdrawn.
Breach of the DPA
If during the term of the DPA, the SFO believes that Standard Bank has failed to comply with any of its terms, the SFO may make a breach application to the Court and if the Court terminates the DPA, the SFO may go on to make an application for the lifting of the suspension of the indictment associated with the DPA and thereby reinstitute criminal proceedings.
Lesson to be learned
The Head of the SFO, David Green QC, has stated publicly, on a number of occasions, that the SFO is motivated, funded and well-resourced to bring bribery and corruption charges.
A DPA in this case was likely to be possible only because there was no allegation against Standard Bank or any of its employees that it or they knowingly participated in an offence of bribery; the offence was limited to an allegation of inadequate systems to prevent “associated persons” from committing an offence of bribery.
The compensation, fine, disgorgement, costs (SFO’s and PWC LLP’s) made the mandate won by bribery, economically disastrous.
The Court, as is common in the United States, appointed PWC LLP to act as a monitor to ensure that Standard Bank and its advisors comply with the terms of the DPA. The Bank will have to bear, in addition to the compensation, fine, disgorgement, and costs, the costs of the Independent Review.
The DPA does not include any protection against prosecution of any present or former officer, employee or agent or against Standard Bank for conduct not disclosed prior to the agreement.
The Board of Directors of Standard Bank remain fully responsible for the Bank’s ongoing conduct, its obligations under the DPA and the Bank’s continued cooperation with the Prosecuting Authorities and the Independent Review.
It is also important to note that the SFO worked closely with the US Department of Justice and the Securities & Exchange Commission throughout the process. A penalty of US$4,200,000 has been agreed between Standard Bank and the SEC in respect of separate, but related conduct.
Finally, of course, the fact that the DPA is made public does tremendous harm to Standard Bank’s brand.
What to do?
To avoid this occurring in your business, you must ensure that your company has complied with its obligations under the Bribery Act, including conducting a proper risk assessment, thereafter implementing policies and procedures, training and monitoring in order to ensure that your company can benefit from the only defence available under the Bribery Act 2010, namely that your company has “adequate procedures” in order to prevent bribery. (Indeed, if a company has “adequate procedures” this is becoming recognised as a strong point of mitigation in relation to FCPA prosecutions too).
By Richard Isham