In a judgment published on Nov. 30, Lord Justice Brian Leveson approved the first deferred prosecution agreement in the U.K., which was negotiated between the Serious Fraud Office and ICBC Standard Bank PLC.
Lord Justice Leveson’s judgment provides rare judicial authority in the anti-corruption field and is the first time that a U.K. judge has reviewed the factors required for the court’s approval of a DPA and their application to published facts. In so doing, he has provided guidance on a number of important areas in respect of U.K. cases:
- The types of case in which a DPA might be appropriate;
- What “early” self-reporting means;
- What degree of cooperation will be required of organizations seeking the benefit of a DPA;
- The role of compliance in the process; and
- What penalties organizations can expect to receive for corruption offenses.
With the Serious Fraud Office inviting negotiations to enter into deferred prosecution agreements in a number of other cases, and a further case expected in court shortly, the decision is one that is expected to set the scene for the development of anti-corruption compliance and enforcement in the UK.
The indictment against Standard Bank, suspended under the terms of the DPA, identified an offense of failing to prevent bribery under s7 Bribery Act in respect of a payment of $6 million made by a sister company, Stanbic Bank Tanzania Limited. The payment was in furtherance of a sovereign note private placement for Tanzania in which Standard Bank and Stanbic were the joint lead managers. The recipient of the $6 million was a “local partner,” Enterprise Growth Markets Advisors Limited (“EGMA”), whose chairman and one of three shareholders and directors was a serving member of the Tanzanian government; and its managing director had been the CEO of the Tanzanian Capital Markets and Securities Authority until 2011.
According to the statement of facts, accepted by Standard Bank as true and accurate, the first Standard Bank/Stanbic first letter of proposal for the transaction was submitted in October 2011. By August 2012 the structure of the deal had changed to include the involvement of a local partner who was to be paid a fee of 1 percent — the $6 million — making the total fee for the transaction increase from 1.4 percent to 2.4 percent.
While there was discussion as to the need for due diligence to be carried out on the local partner, there was very limited understanding as to what role the local partner would have. The fee-sharing agreement between Stanbic and EGMA was signed in early 2013, but was backdated to Nov. 5, 2012, shortly before the engagement with the government was signed and shortly before a due diligence checklist was circulated between Stanbic and Standard Bank for the opening of an account of EGMA with Stanbic. However, because the fee-sharing agreement was between Stanbic and EGMA and no payment was to be made by Standard Bank to EGMA, it was not considered necessary for Standard Bank to conduct due diligence on EGMA. Stanbic’s inquiries were characterized by the SFO as appropriate for the opening of a straight forward business bank account. So, while they revealed the identities of the directors of EGMA and thus the involvement of a serving government official with that company, this does not appear to have been discussed. In fact, Stanbic’s internal audit team identified Stanbic’s internal controls as unsatisfactory in March 2013.
The placement documents were signed on March 7, 2013; the government received $600 million on March 8; and Stanbic paid $6 million to EGMA on March 15 out of the 2.4 percent fee paid by the government. The $6 million was withdrawn between March 18 and 27; all but $590,000 was withdrawn in cash.
The SFO concluded that Standard Bank did not have a realistic prospect of raising the statutory defense of having adequate procedures designed to prevent the bribery taking place.
The Test for a DPA
A judge must be satisfied first that a DPA is in the interests of justice; and second, that the terms of the proposed DPA are fair, reasonable and proportionate.
The Interests of Justice
The factors taken into account by Lord Justice Leveson in concluding that it was in the interests of justice to approve the DPA were:
- The relevant criminality was not one of substantive bribery, but of failing to prevent bribery by senior officers of a sister company as a result of inadequacy in compliance and a failure to recognize the risks.
- Standard Bank reported itself very quickly to the U.K. authorities: The relevant transaction completed in March 2012; staff at Stanbic raised concerns on March 26, 2012, that the $6 million had been withdrawn in cash; and by April 24, Standard Bank had reported to the SFO. The matter was unlikely to have come to the attention of the authorities without the self-report.
- Standard Bank provided extensive cooperation to the SFO. Among other things: ◦ It conducted an investigation sanctioned by the SFO and carried out by independent lawyers and made its findings available to the SFO;
- It made available summaries of first interviews and documents shown to the witnesses and cooperated in making employees available to the SFO for it to interview;
- It responded fully and in a timely manner to SFO requests for information; and
- It made its document review platform available to the SFO.
- Standard Bank had no previous convictions for bribery or corruption and had not previously been investigated by the SFO. Although it had been the subject of enforcement action by the Financial Conduct Authority in 2011 in respect of failures in its anti-money laundering procedures, the judge concluded that this was sufficiently separate not to be taken into account.
- Lord Justice Leveson considered the weight to be attached to the corporate compliance program at the time of the offense, at the time of the report and any subsequent improvements. A report commissioned by the FCA in 2014 had concluded that there had been significant improvements since 2011 in Standard Bank’s compliance policies and procedures.
- Standard Bank had become a significantly different entity since the commission of the offense, since ICBC acquired a 60 percent majority shareholding in the bank in February 2015 and a new board had subsequently been appointed.
Fair, Reasonable and Proportionate Terms
The terms essentially comprise payment by Standard Bank of the following (not to be set off for tax purposes):
- Compensation to the government of Tanzania of $6 million plus interest of $1.2 million;
- Disgorgement of the profit made by Standard Bank and Stanbic of $8.4 million;
- A penalty of $16.8 million; and
- SFO costs of £330,000.
In addition, further terms provide for further cooperation with the SFO and the commission of an independent review of anti-bribery and corruption controls, policies and procedures for compliance with the Bribery Act and other relevant anti-corruption laws at Standard Bank’s expense.
Calculation of the Penalty
The penalty was calculated on the basis that Standard Bank’s culpability was on the medium scale of the Sentencing Council Guidelines, adjusted higher as a result of the harm multiplier, resulting in an initial multiplication of 300 percent of the profit of $8.4 million. This figure of $25.2 million took into account mitigating factors, being essentially those factors taken into account on the interests of justice assessment together with the fact that the compliance failures were not widespread in the bank.
The figure was then reduced when the judge carried out the final steps in compliance with the Sentencing Council Guidelines of stepping back to consider the overall effect of the sentence and taking into account the early reporting and indication of guilt. Lord Justice Leveson took into account the fact that the U.S. Department of Justice had indicated that the penalty was comparable with the penalty that it would have imposed and that if the penalty were approved in the U.K. then it would close its inquiry. Citing the bank’s early reporting and indication of guilt and cooperation, Lord Justice Leveson reduced the penalty to $16.8 million.
Availability of DPAs
It is unlikely that a DPA will be available in the case of a company charged with a substantive Bribery Act offense of bribing, save perhaps where there has been a subsequent change of ownership and control. This is because under the English test the company’s “directing mind” must have involved for a company to be guilty of such an offense. Lord Justice Leveson emphasized the fact that the substantive bribery in this case was alleged to have been that of Stanbic and two of its senior officers, and that the Standard Bank offense was that of failing to prevent that conduct.
The Role of Compliance
Clearly, defects in compliance led to the conclusion that Standard Bank did not have a defense to the offense of failing to prevent bribery. There was a hole in the compliance in that there was apparently no requirement by Standard Bank for appropriate due diligence to be carried out to prevent an associated person (Stanbic) bribing to obtain business for Standard Bank. The relevant trigger for due diligence by Standard Bank was where it was to enter into a contract with an introducer or to make a payment to such a person. Instead it relied on the due diligence of Stanbic; and Standard Bank therefore had no adequate procedure designed to prevent the conduct.
Unsurprisingly, the charging of a Section 7 failure to prevent bribery offense and the potential statutory defense of having adequate procedures brings a company’s compliance program into the center of considerations at every stage. It is the compliance program that can provide a defense; and where it is not sufficient for the that purpose, it falls to be considered at the sentencing stage where it is relevant both to the amount of the penalty and the terms of the DPA, which in the Standard Bank case included terms aimed at the review and improvement of the bank’s compliance procedures.
What “Early” Self-Reporting Means
The relevant transaction completed in March 2012; staff at Stanbic raised concerns on March 26 that the $6 million had been withdrawn in cash; this was referred to Standard Bank’s head office in South Africa on April 2; on April 18 Standard Bank reported itself to the Serious and Organized Crime Agency and on April 24 to the SFO. Standard Bank reported itself to the U.K. authorities even before it had started its own investigation, and this was something that Lord Justice Leveson emphasized. Whilst the completeness of the self-report is a matter to be considered, and clearly the report was not complete when the matter was first reported to the SFO, this was addressed by Standard Bank having the SFO sanction its investigation and by reporting its findings to the SFO.
The Degree of Cooperation Required of Organizations Seeking the Benefit of a DPA
Important elements of Standard Bank’s cooperation included:
- conducting an investigation by independent lawyers sanctioned by the SFO and making its findings available to the SFO;
- making available summaries of first interviews and documents shown to the witnesses and cooperating in making employees available to the SFO for it to interview: on a number of occasions the SFO has emphasized the importance to it of witnesses’ first accounts;
- responding completely and in a timely manner to SFO requests for information; and
- making its document review platform available to the SFO.
What Penalties Organizations Can Expect to Receive for Corruption Offenses
Clearly, corruption offenses involve significant criminality. Further, organizations can expect to receive very similar treatment in both the U.K. and the U.S. Lord Justice Leveson followed and emphasized the approach of Lord Justice John Thomas (as he then was) in R v Innospec, in which Lord Justice Thomas had said in his sentencing remarks:
There can be no doubt that corruption of foreign government officials or foreign government ministers is at the top end of serious corporate offending both in terms of culpability and harm. …
Although there may be reason to differentiate the custodial penalties imposed for corruption between the US and England and Wales, no one was able to suggest any reason for differentiating in financial penalties. Indeed there is every reason for states to adopt a uniform approach to financial penalties for corruption of foreign government officials so that the penalties in each country do not discriminate either favourably or unfavourably against a company in a particular state.
As Lord Justice Leveson said:
Bearing in mind the observations of Thomas LJ in Innospec Ltd, a useful check is to be obtained by considering the approach that would have been adopted by the US authorities had the Department of Justice taken the lead in the investigation and pursuit of this wrongdoing.
The U.K. has developed a judge-led approach to DPAs. Standard Bank is the first, but it is clear from Lord Justice Leveson’s judgment that it is an approach that will be encouraged and adopted by the judiciary in appropriate cases, most likely where the company’s criminality is limited to failing to prevent corruption. It is also clear from Standard Bank that anti-corruption compliance will play a central part in the process; and that the courts will support self-reporting and cooperation by companies both by punishing a failure to self-report or cooperate and by rewarding companies that do self-report and cooperate.
 Serious Fraud Office v Standard Bank plc (now known as ICBC Standard Bank plc) Case No U20150854 (30.11.15) https://www.judiciary.gov.uk/wp-content/uploads/2015/11/sfo-v-standard-bank_Final_1.pdf
  EW Misc 7 (EWCC)