It's over four years since the Bribery Act 2010 (the Act) came into force, introducing a new strict liability corporate offence of failing to prevent associated persons from bribing (section 7). In our latest article, we review the Serious Fraud Office's (SFO) first successful use of section 7 of the Act which has also given rise to the UK's first deferred prosecution agreement.
The lack of corporate prosecutions under the Act since it came into force has led many commentators to question whether the Act was overhyped. Prosecutors in England and Wales have also had the ability to agree deferred prosecution agreements (DPAs) with corporate offenders since February 2014, provided it is in the public interest to do so. DPAs are designed to encourage organisations to self-report in return for the possibility of a more lenient outcome and avoiding prosecution.
Serious Fraud Office v Standard Bank Plc (in which judgment was handed down on Monday 30 November) is the SFO's first successful use of section 7 of the Act and has also given rise to the UK's first DPA. In a statement issued after the judgment, David Green, director of the SFO, described the DPA as serving as a template for future agreements.
The facts of the case
The Government of Tanzania wished to raise funds to support a development plan. Standard Bank Plc (Standard Bank, now known as ICBC Standard Bank Plc) sought to win the instructions to raise the finance together with one of its sister companies at the time, a Tanzanian company called Stanbic Bank Tanzania Limited ("Stanbic"). Stanbic had involved Standard Bank in the deal as Standard Bank had the necessary licences to enter into the transaction and Stanbic did not.
Negotiations began in February 2012. Standard Bank and Stanbic's initial proposed arrangement fee was 1.4%. It appears the deal failed to progress until Stanbic engaged a local partner, a Tanzanian company called Enterprise Growth Market Advisors Limited (EGMA). EGMA was to receive a fee of 1% of the funds raised so that the overall fee to be paid by the Government of Tanzania was now 2.4%. The directors of EGMA included a serving member of the Government of Tanzania and the former head of a Government of Tanzania agency. Standard Bank relied on Stanbic to conduct due diligence in relation to EGMA but made no enquiry of its own.
Stanbic and Standard Bank received the mandate to raise the funds in November 2012, ultimately raising $600 million. EGMA was paid its fee of $6 million but there was no evidence that EGMA provided any services for the fee. Suspicions were raised when shortly after the fee was deposited the vast majority of it was withdrawn in cash.
Standard Bank self-reported to the SFO in April 2013 and instructed a law firm to undertake an internal investigation. The SFO concluded that admissible evidence as a result of the investigation provided grounds for reasonable suspicion that Standard Bank had failed to prevent bribery contrary to section 7 of the Act (i.e committed the corporate offence). In particular, that associated persons of Standard Bank, namely Stanbic and/or its Chief Executive and/or its Head of Corporate and Investment Banking, had committed bribery intending to obtain a business advantage for Standard Bank.
There was no allegation that Standard Bank and/or any of its employees had knowingly participated in an offence of bribery. However, the SFO found that material put forward by Standard Bank to rely on the defence of putting in place adequate procedures to prevent bribery was insufficient.
The SFO and Standard Bank agreed a DPA which means Standard Bank will avoid prosecution provided that it complies with the provisions of the DPA which has a term of three years. Under the DPA, Standard Bank has to pay financial penalties of over $30million (including a fine of $16.8m, disgorgement of profits of $8.4m, compensation to the Government of Tanzania of $6m plus interest and payment of the SFO's costs).
The DPA also obliges Standard Bank to commission, at its cost, an independent review of its current anti-bribery and corruption policies, including in relation to intermediaries and training, and to implement advice and recommendations arising from the review.
The judgment provides very useful guidance in a number of respects. Some key points highlighted by the case are as follows:
- The potential benefits of prompt self-reporting and cooperation with the SFO. Sir Brian Leveson referred to the early admission and cooperation by Standard Bank as of particular significance to the successful application for a DPA and Standard Bank's financial penalty was reduced by a third on the same basis.
- The importance of watching out for red flags and acting on them. The transaction gave rise to a number of red flags for bribery risk - for example, a transaction with the government of a high risk country, a potentially unnecessary local partner, personnel of the local partner having connections with government and no evidence the large fee to be paid represented reasonable consideration for services provided. However, in this case it appears no inquiry was made before the transaction proceeded.
- Organisations should ensure that anti-bribery policies and procedures address the potential risks that they face and are clear, understood and applied. Standard Bank had a number of committees, policies and procedures intended to address bribery and corruption but the applicable policy was found to be unclear, not reinforced through communication and/or training and provided insufficient guidance to deal with the situation concerned (i.e. where two group entities were involved and one engaged an intermediary).