The Historic Moment
Before a packed Southwark Crown Court on 30 November 2015 Leveson LJ handed down the second of two judgments in which he provisionally approved, and then confirmed, the first UK Deferred Prosecution Agreement (“DPA”), some 22 months after they were introduced into UK law. The DPA took on added significance by virtue of the fact that it was the first time that the offence contrary to section 7 of the Bribery Act 2010 (failure to prevent bribery) had been used successfully by the SFO. As Leveson LJ indicated in his judgment, the Standard Bank DPA will set the benchmark for the conduct of future DPA’s, and there are some important lessons to be learned for companies both as to (a) the “adequacy” of financial crime procedures; and (b) how to conduct themselves when they uncover criminality within their ranks, or by an associate.
The Government of Tanzania wanted to raise funds for public development projects via sovereign note private placement. Stanbic Bank Tanzania Ltd (“Stanbic”), a subsidiary of Standard Group Ltd (a South African company) was not licensed to work with non-local investors in the debt market and so put together a joint proposal to raise those funds with another Standard Bank Group company, Standard Bank (UK), that was licensed. Negotiations proved fruitless until Stanbic entered into an agreement with a Tanzanian consultancy EGMA. EGMA was a company owned by two high-ranking public officials who had influence over the deal. However, because Standard Bank left the due diligence and onboarding of EGMA to Stanbic, this fact was not known to the Standard Bank deal team at the time of the transaction. As “local partner”, EGMA was to be paid a success fee of 1% of the funds raised (the Standard Bank team was to be paid 1.4%). Shortly thereafter the deal with the Government of Tanzania was finalised.
Ultimately, $600m was raised and EGMA was paid $6m in fees. That sum was withdrawn in cash within 10 days and this led Stanbic staff to report the cash withdrawals to the head office of Standard Bank Group Ltd, which in turn passed the information to Standard Bank, which moved quickly to report the suspected wrongdoing to the SFO. Within the space of three weeks Jones Day had been instructed to investigate, and both the Serious and Organised Crime Agency and the SFO in the UK were informed of the issue. As Leveson LJ observed: “In this case the disclosure was within days of the suspicions coming to the Bank’s attention, and before its solicitors had commenced (let alone completed) its own investigation…”
The two judgments set out in detail the various factors that the SFO and, subsequently, Leveson LJ considered in order to conclude that a DPA was in the interests of justice, and that the terms of the DPA were fair, reasonable and proportionate. However, there are two points which stand out:
(a) Inadequate Procedures
In considering whether there was sufficient admissible evidence to meet the test set out in the DPA Code the Director had to satisfy himself that Standard Bank did not have “adequate procedures” (the statutory defence to the section 7 Bribery Act offence) to prevent bribery.
Had Standard Bank had in place such procedures the SFO would not have been able to proceed further, and they would have been forced to consider another means of dealing with the conduct, for example by pursuing a civil recovery order.
However, in the event the SFO found, and Leveson LJ agreed, that Standard Bank’s procedures were inadequate. The Statement of Facts – a formal document setting out the agreed facts upon which the SFO and Standard Bank proceeded to negotiate the DPA – provides considerable detail as to Standard Bank’s processes and procedures at the relevant time. Unsurprisingly, Standard Bank had committees and detailed procedures which drove at dealing with bribery risk, amongst other compliance issues. The problem was found to be in the communication and training of Standard Bank employees in the use and application of the procedures. There was a policy (“Introducers and Consultants Policy”) that would, if applied, have led to the identification of the issues with EGMA. The difficulty was that none of the deal team considered that it applied.
Leveson LJ’s conclusions on the applicable policies and procedures are worth reading in full:
“20. …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 anti-corruption culture was not effectively demonstrated within Standard Bank as regards the transaction at issue.”
(b) Standard Bank’s Response to the Criminality
The early reporting of the conduct in question, and the cooperation offered to the SFO was central to the decision, on the part of the SFO, to offer Standard Bank a DPA rather than prosecute. Further, Leveson LJ confirmed that this held “considerable weight” in his own assessment of the DPA and “…militates very much in favour of finding that a DPA is likely to be in the interests of justice.”
He went on to praise Standard Bank for the responsible way in which it had approached the situation:
“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.”
Terms of the DPA
The details of the DPA were as follows. For a period of three years the SFO agreed to suspend the indictment and, subject to compliance with the requirements of the DPA, after three years, they will discontinue proceedings. The requirements were as follows:
- i) Payment of compensation of US $6 million plus interest of US $1,046,196.58 to the government of Tanzania;
- ii) Disgorgement of profit on the transaction of US $8.4 million;
iii) Payment of a financial penalty of US$16.8 million;
- iv) Past and future co-operation with the relevant authorities in all matters relating to the conduct arising out of the circumstances of the draft Indictment;
- v) At its own expense, commissioning and submitting to an independent review of its existing internal anti-bribery and corruption controls, policies and procedures regarding compliance with the Bribery Act 2010 and other applicable anti corruption laws;
- vi) Payment of costs incurred by the SFO of £330,000 – a sum noted as being low as a result of the extensive internal investigation.
It was also agreed that no tax reductions were to be sought by Standard Bank in relation to the payments (i) to (iii) an (vi) above.
The Standard Bank DPA demonstrates, if it were ever in doubt, the importance of devising, maintaining, and communicating adequate procedures for the prevention of bribery. It is clear that where Standard Bank fell down was not in the nature and content of their procedures but, rather, their failure to implement them in such a way as to ensure that the individuals involved in the transaction recognised the obvious red flag, and the fact that they needed to apply the procedure applicable to consultants.
Further, it provides all companies with a clear message from both the SFO (who have, for some time, been saying the same thing repeatedly) and the Court that companies who wish to benefit from the considerable benefits of a DPA over a prosecution must engage with the authorities very quickly once criminality is uncovered.
Finally, this case serves to highlight the far reach of the UK Bribery Act – this is a clear example of how section 7 will be used to capture conduct over which, before its implementation, the UK authorities would not have had jurisdiction.