Get your house in order: Corporate failure to prevent bribery sees UK’s first deferred prosecution agreement
Wednesday 2nd December 2015
On Monday, Lord Justice Leveson, the President of the Queen’s Bench Division presided over a hearing at Southwark Crown Court dealing with two landmark events – the first was that he approved the UK’s first ever Serious Fraud Office (“SFO”) deferred prosecution agreement (“DPA”) with Standard Bank Plc (now known as ICBC Standard Bank Plc) and the second was this was a much anticipated test case concerning allegations that a corporate body had failed to prevent bribery by persons acting on its behalf which is an offence under Section 7 of the Bribery Act 2010.
The allegations centred on the activities of Standard Bank in Tanzania, principally that it failed to prevent two officials of Stanbic Bank Tanzania Limited (former sister company of Standard Bank Plc) from making a corrupt payment of US$6 million to a local partner known as Enterprise Growth Market Advisors. The SFO alleged that this payment was intended to induce Tanzanian Government officials to show favour to Standard Bank and Stanbic Tanzania in respect of a $600 million private placement by the Government of Tanzania. The full 55 page statement of facts can be found here. Lord Justice Leveson in his Judgment specifically stated that “no allegation of knowing participation in an offence is alleged 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”. Indeed later in the judgment reference is made to the bank having “acquiesced in an arrangement (however unwittingly)”.
The DPA is a discretionary process and was introduced in the UK via the Crime and Courts Act 2013 and is designed to encourage corporate offenders to self-report their illegal activities to avoid prosecution, by entering into negotiations with the prosecutor in the hope of achieving a fair, reasonable and proportionate result. In doing so the corporate body would hope to minimise the impact of any investigation on their business operations, retain some ability to manage the PR fall out (in the Standard Bank case, the fact these DPA negotiations were taking place were kept under wraps until late last week which is somewhat unusual) and introduce a degree of certainty into a very uncertain process. The benefit to a prosecutor, amongst other things, is the reduction in time and cost in investigating some of the most complex financial criminal cases in the country whilst bringing a degree of certainty to the outcome of an investigation.
The terms of the DPA, lasting for three years, require Standard Bank:
- To pay a financial penalty and disgorgement of profit totalling US$25.2 million;
- To pay compensation of just over US$7 million;
- To pay the SFO’s costs of £330,000
- To co-operate with relevant authorities in all matters relating to the conduct arising from the circumstances of the draft indictment; and
- To submit (at its own cost) to an independent review of its internal anti-bribery and corruption controls, policies and procedures in relation to UK and relevant corruption law.
Lord Justice Leveson in his Judgment assessed the financial penalty as being “broadly comparable to the fine that a court would have imposed following conviction after a guilty plea”. In this case the penalty was assessed at the top end of the Sentencing Guidelines for corporate offenders at 300% of the total fee, which was then reduced by one third to take account of the early admission. In addition to this Standard Bank has agreed a US$4.2 million penalty with the US Securities and Exchange Commission. The question practitioners will be wrestling with is whether this is sufficiently financially beneficial when considering likely levels of fines that a corporate body would receive following an early guilty plea.
The Director of the SFO, David Green CB QC, commented in the SFO press release “This landmark DPA will serve as a template for future agreements. The Judgment from Lord Justice Leveson provides very helpful guidance to those advising corporates”. Undoubtedly the DPA will be considered a triumph by the SFO in that it clearly shows that early action and co-operation can lead to a relatively swift non-prosecution disposal of serious and complex financial crime. There is still much to consider but Lord Justice Leveson in his Preliminary Judgment stated that “considerable weight must be attached [to] the fact that Standard Bank immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter” and went on to say that the self-report was made within days of the bank becoming aware of the activity and before its solicitors had commenced its own investigations. That was undoubtedly a brave decision.
Every case will be fact dependent but on these facts Lord Justice Leveson clearly felt that Standard Bank had done the right thing:
“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.”
However, a note of caution comes from Ben Morgan, the SFO joint head of Bribery and Corruption speaking yesterday at the Managing Risk and Mitigating Litigation Conference 2015 who said of the DPA process:
“…don’t mistake our willingness to go down this route …… to force a DPA onto every corporate case that we take on. In some quite specific situations they will be appropriate, and we will always have in mind their possible use, but they are not the answer to everything. It is a high bar, for a DPA to be suitable, and where it is not met we have the appetite, stamina and resources to prosecute in the ordinary way.”
All of that said, whilst this DPA Judgment undoubtedly provides guidance, only time (and more of such cases) will tell whether corporates will rush to self-report on discovery of wrong doing. One thing is for sure – this case should be a wake-up call for business to ensure that they have in place adequate anti-bribery and corruption procedures which are robust and fit for purpose.
If you require advice or assistance on any aspect of your anti-fraud strategy then please speak to Peter Hampson, Head of Regulatory on 0113 227 0392 or at firstname.lastname@example.org.