Bribery and Rehabilitation in the financial services sector – Standard Bank Plc provides the first example of a UK Deferred Prosecution Agreement (DPA)

08 December 2015

Simon Phippard, Louise Lanzkron

Bird & Bird & First for Disputes

Last week the Crown Court declared that the first example of a DPA in England was in the interests of justice and that the agreed terms were fair, reasonable and proportionate. If you would like to know more about the DPA regime please click on the following to request a copy of Bird & Bird's Know How Brief: Deferred Prosecution Agreements in the UK.

Although the regime is not limited to corporate bribery offences, the mechanism has been widely used in the US in those situations, and the corporate offence of failing to prevent bribery under the UK's 2010 Act was frequently cited, during the process of enacting the Crime and Courts Act 2013, as the classic situation for which a DPA is suited. It is perhaps unsurprising, therefore, that this example arose from an allegation of that offence; and also, given its leading status, that it was approved by Lord Justice Leveson, one of the most senior criminal judges, and that Sir Edward Garnier QC, who as Solicitor General played a prominent role in the legislation that established the DPA regime, should appear for the SFO at the approval hearing.

1) The facts

The DPA arose out of the Government of Tanzania's desire to raise funds by way of a sovereign note private placement. Standard Bank plc (SB), a UK registered company, and Stanbic Bank Tanzania Ltd (Stanbic), a Tanzanian company, put forward a proposal to raise the required funds. Stanbic was not licensed to carry out this type of business which is why it needed to act with SB on the mandate. The parent company of both entities, Standard Bank Group Ltd (SB Group), is publicly owned and registered in South Africa.  

The original proposal contemplated a fee of 1.4% of the gross funds raised. However the mandate was only awarded once Stanbic increased the proposed fee to 2.4%. It later transpired that 1% of that fee would be paid to a Tanzanian company called EGMA. Two of the three shareholders of EGMA were members of, or associated with, the Tanzanian government. SB was not immediately aware of the involvement of EGMA and  the obvious inference was that the 1% fee to EGMA was intended to induce the government of Tanzania to show favour to Stanbic and SB's proposal. 

In the event $600 million was raised. Although the two Standard Bank companies were jointly instructed by the government, SB relied on Stanbic to conduct the appropriate due diligence into EGMA. SB made no enquiry about EGMA or its role. There was no evidence that EGMA provided any services in relation to the transaction yet once the financing was completed a fee of $6 million was transferred to EGMA via an account with Stanbic. Shortly after, most of that money was withdrawn in cash. Concerned staff at Stanbic then alerted the SB Group who started an internal investigation. Within a week SB had been informed and it appointed a law firm both to report the circumstances to SOCA and the SFO and to conduct a thorough internal investigation and disclose those findings to the SFO.

The SFO considered that there was a realistic prospect of conviction of SB for failure to prevent bribery contrary to s.7 of the Bribery Act 2010. The allegation was not that SB had knowingly participated in an offence of bribery but rather that it did not have adequate procedures to prevent associated persons from committing an offence of bribery. This deprived it of any defence to strict liability under s.7(2) of the 2010 Act. SB's policies were unclear and its training was insufficient. 

2) The terms of the DPA
  • The DPA is to last three years from 30 November 2015.
  • Various financial payments and penalties levied on SB totalling more than $30 million including payment of $6 million to the government of Tanzania and a financial penalty of $16.8 million to represent the culpability of SB. These payments to be made within 7 days of the DPA being approved by the court.
  • Future co-operation by SB with relevant authorities in all matters relating to the Indictment.
  • At its own expense, SB submitting to an independent review of its procedures, controls and policies regarding compliance with the Bribery Act 2010.
  • Paying the costs incurred by the SFO of £330,000.
3) The interests of justice

The court must examine whether it is in the interests of justice to proceed with the DPA rather than prosecute. The court's analysis of this element of the DPA is useful as it provides guidance as to 'best practice' for companies faced with this issue in the future:

  • SB's crime was a failure to prevent the intended bribery being committed by a sister company, therefore the offence, albeit serious, in these particular circumstances did not merit prosecution.
  • SB immediately reported itself to the authorities and took a pro-active approach to the problem. Disclosure to the SFO was commenced before appointed solicitors had even begun to investigate the matter.
  • The report made to the SFO was detailed and  formed the basis of the Statement of Facts used in the DPA proceedings. This was helpful to the SFO. SB fully co-operated throughout with the SFO and this showed that the DPA would be in the interests of justice.
  • There had been no previous history of such conduct by SB. Although SB had significant failings in its compliance policies at the time, it has since made significant steps to rectify these, although it has some way to go.
  • SB has since been taken over by ICBC and the business group involved in the conduct has been transferred to the parent SB Group. SB is now a very different organisation from  the one which failed to prevent the bribery. 
4) Points of interest

The entire episode is of course a reminder of the interest the UK anti-bribery authorities will take in the actions, anywhere in the world, of an overseas business which carries on business in the UK, and of the importance of adequate compliance procedures. So far as the DPA process is concerned, once the DPA is approved, it is published to allow public scrutiny of the agreement and it is hoped this will act as a future deterrent. The judgment makes it very clear that the role of the court was'pivotal' in the assessment of the terms of the DPA and that the parties did not reach a private compromise without 'appropriate independent judicial consideration of the public interest'.  

Finally the court commended the actions of SB: by self-reporting, investigating and submitting to the DPA SB did not try to get 'away with it'. It is noteworthy that during this process SB was able to have its own lawyers conduct the investigation, albeit under sanction of the SFO, without falling foul of the SFO's concern about internal investigations that 'trample over the crime scene'. The court took the view that, by agreeing to the DPA and the substantial compliance and financial implications, SB is on the way to 'repairing and, ultimately, enhancing its reputation and, in consequence, its business'.

Click here for previous articles by Bird & Bird on this topic >>

Authors

Louise Lanzkron

DR Knowledge & Development Lawyer
UK

Call me on: +44 (0)20 7415 6000