It has finally come to pass: the first deferred-prosecution agreement under the U.K. Bribery Act!
In a courtroom in London, in late November, the Serious Fraud Office and attorneys for the defendant Standard Bank (now known as ICBC Standard Bank) convened to seek formal judicial approval of a DPA for the bank’s conduct in failure to prevent payment of bribes, made illegal under Section 7 of the Bribery Act. The bribes were paid out by an affiliate of the London-based institution, Stanbic Bank Tazania.
The conduct by Stanbic was quite egregious. It involved the local bank handling an offering to raise Tanzanian government financing. Stanbic had initially bid on the work and did not receive any indication it would be the winning party. It then hired a local agent, which consisted of not only Tanzanian government officials, but even the official in charge of deciding which financial institution to use as the servicing agent. Miraculously, Stanbic was then awarded the business.
The local agent was paid a fee of 1.2 percent of the $600 million offering, or a commission of $6 million. The illegal transaction was stopped only after it was completed and the local agent withdrew its entire commission in cash from Stanbic. This triggered the London bank’s anti-money laundering system as a suspicious transaction. It was investigated and self-disclosed to the SFO.
The penalties were interesting as well. Standard Bank agreed to pay $25.2 million. The penalty consisted of a $16.8 million fine and $8.4 million in disgorgement of profits. It also agreed to pay the SFO's "reasonable costs" of £330,000 for the investigation and resolution of the DPA.
Finally, the U.S. Securities and Exchange Commission got in on the action and entered a cease-and-desist order that required the London Bank to pay a $4.2 million civil penalty for the conduct of failing to make certain disclosures in connection with the offering in violation of Section 17A of the 1933 Securities Act (which prohibits fraud and misrepresentation in the offer of sale of security). The SEC required disgorgement of $8.4 million but deemed that satisfied by the disgorgement in the U.K. action.
The U.K. Bribery Act DPA practice has some significant differences from the U.S. practice under our Foreign Corrupt Practices Act—and these were all prominently displayed throughout the process.
First was the criminal offense: failure to prevent bribery. As explained by noted U.K. compliance practitioner Jonathan Armstrong in an interview, “A corporation has to have adequate measures in place to guard against bribery.” The Ministry of Justice set out these adequate procedures in 2011 and the finding was that the London bank fell far below those standards when its affiliate bank in Tanzania engaged in the conduct at issue.
Armstrong went on to say, “Bear in mind it's the London bank that's entered into this DPA, not the local bank. The London Bank effectively said, ‘Yes, we associated with our local sister company and we didn't put adequate measures in place to ensure that the deals we did together weren't corrupt.’ Obviously they didn't do things like proper due diligence because the London bank said, ‘We relied on our colleagues on the ground locally to do due diligence,’ and effectively they didn't supervise or have input into that process.”
While I was most skeptical of judicial involvement, as opposed to simple judicial oversight, the British system seemed to work well in this instance.
Another difference was the scope and quality of judicial involvement. Prior to the formal hearing in open court on Nov. 30, a closed hearing happened where the parties presented the general parameters to see if the judge would entertain such an agreement. At the conclusion of that initial hearing, the court stated, according to its approved judgment, that “entering into the DPA was likely to be in the interests of justice and that its proposed terms were fair, reasonable, and proportionate.” The court then reviewed all documentation presented to it and definitively approved “that which I previously approved provisionally.”
Another interesting difference noted was the statement of facts, which was 55 pages long. In these agreed facts, the SFO laid out a detailed explanation of the conduct that both the London bank and Stanbic engaged in which led to the prosecution. The statement’s level of detail is far beyond anything I have ever seen in a U.S. DPA.
For any compliance practitioner, it is a step-by-step manual which you can use for training in your organization. But more than simply detailing the transgressions and missed Red Flags of Stanbic, it sets out what the London bank did right and how the bank’s AML program picked up the withdrawal of $6 million in cash as a suspicious transaction to be investigated. In short, it is just a fabulous teaching document for both anti-corruption and anti-money laundering.
I thought this case was a huge win for the SFO, which has taken some harsh criticism over the past 18 months or so and seems to have continually fended off attempts to defang both itself and the law. It could also be viewed a large win for the Chinese entity that acquired Standard Bank (and renamed it ICBC Standard Bank) during this pendency of the proceedings.
Armstrong said, “I think in some respects this case is somewhat unique, in that my reading between the lines is that there was a corporate transaction going on for the London bank and it seems that the vendor of the London bank has paid the settlement. So in some respects for the acquiring bank it's sensible because it allows them to start with a clean sheet.”
The hackles have been rising over the use of DPAs in the United States, from as high as federal court judges down to legal commentators. This first DPA in Britain seems to taken many of these criticisms into account. While I was most skeptical of judicial involvement, as opposed to simple judicial oversight, the British system seemed to work well in this instance. Even the sitting judge had kind words in his written opinion and direct words from the bench about the quality of the presentation to him (both the written submission and the oral presentations by the parties) so that he went out of his way to congratulate all of the parties.
It may be that if greater judicial scrutiny of DPAs transpires, many of the criticisms of their use could be met. Perhaps even the Justice Department would not claim courts have no right to review the terms and conditions of DPA. It is all worth considering.
Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more