Companies hoping to obtain leniency with the U.K. Serious Fraud Office when they disclose misconduct now have some much-needed guidance, thanks to the SFO’s first-ever deferred-prosecution agreement.
The last few weeks certainly have proven successful for the SFO, which struck its first DPA on Nov. 30 with Standard Bank, just three days before it also levied its first-ever charges against a company—in this case, the Sweett Group—for a Section 7 violation under the Bribery Act. In a statement, SFO Director David Green said that this DPA was a landmark event that would serve as a template for future agreements.
The SFO’s decision to use DPAs, which began in February 2014, is part of a broader initiative to resolve corporate criminal cases more quickly and to foster a culture of openness and cooperation between companies and enforcement authorities.
The use of DPAs represents a seismic shift in the United Kingdom, because companies for the first time ever have an incentive to try and seek an early resolution and avoid prosecution at the same time, explains Neill Blundell, a partner at U.K. law firm Eversheds.
Unlike the DPA process in the United States, a critical feature of the statutory scheme in the United Kingdom requires that a court must approve the DPA before it can take effect. The specific statutory conditions that must be met are spelled out in the DPA Code of Practice, published 18 months ago by the SFO.
That code sets out a number of public interest factors for and against entering into a DPA. One test that must be satisfied, for example, is that a DPA be “in the interests of justice” and that the terms be “fair, reasonable, and proportionate,” according to the Code of Practice.
“When you compare the Standard Bank case to the factors in the code, it’s clear that the Standard Bank case was safely within those guidelines,” says Stephen Parkinson, head of the criminal and regulatory litigation group at law firm Kingsley Napley.
“When you compare the Standard Bank case to the factors in the [DPA Code of Practice], it’s clear that the Standard Bank case was safely within those guidelines.”
Stephen Parkinson, Head of the Criminal and Regulatory Litigation Group, Kingsley Napley
The Standard Bank DPA arose from an internal investigation that Standard Bank’s former sister company, Stanbic Bank Tanzania, pursued in April 2013. That investigation was launched after the discovery of a suspicious $6 million payment made one month earlier to a local partner in Tanzania, EGMA, into a Stanbic account. Most of that amount was withdrawn in cash shortly thereafter, raising an immediate red flag.
Upon being informed of the suspicious payment, Standard Bank Group’s head office in South Africa immediately notified enforcement agencies of the violations. That’s when the SFO initiated its own investigation, ultimately concluding that the intent of the payment was to induce Tanzanian government officials—in violation of the Bribery Act—to show favor to Stanbic Tanzania and Standard Bank’s proposal for a $600 million private placement to be carried out on behalf of the Tanzanian government.
In the Standard Bank opinion, Lord Justice Brian Leveson highlighted specific measures that the bank undertook that ultimately aided the court in approving the DPA. For one, Standard Bank immediately reported itself to the authorities and “adopted a genuinely proactive approach to the matter,” Leveson said. “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) their own investigation.”
The broader lesson for other companies that discover potential criminal conduct within their operations is that “it’s critical to launch an investigation and consider self-reporting as soon as possible,” says Blundell. Companies must also ensure that their anti-bribery procedures are adequate in establishing a defense for a Section 7 violation of the Bribery Act, he says.
INTERESTS OF JUSTICE
Below is an excerpt from the approved judgment by Sir Brian Leveson, president of the Queen’s Bench Division.
Irrespective of the terms of the DPA, it must be in the interests of justice to proceed in this manner as opposed to prosecution and 11.3(3)(i)(i) of the 2015 Rules requires the application for a DPA to explain the way in which the interests of justice are served. The Director of the SFO has accordingly submitted a number of factors that led him to conclude that a DPA with Standard Bank is appropriate.
The first consideration must be the seriousness of the conduct for the more serious the offence, the more likely it is that prosecution will be required in the public interest and the less likely it is that a DPA will be in the interests of justice. This is a topic to which I shall return when considering the terms of the proposed DPA but it is right, at this stage, to recognize that although the predicate bribery offence was allegedly committed by two senior executives of Stanbic, and involved the intention to bribe a foreign public official, using public funds such as to make the intended bribe payment, such as could have compromised the integrity of a financial market, that is not the conduct in respect of which Standard Bank falls to be judged…
The second feature to which considerable weight must be attached is the fact that Standard Bank immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter: In this regard, the promptness of the self-report and the extent to which the prosecutor has been involved are to be taken into account. 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 third element relevant to the interests of justice test concerns the extent of any history of similar conduct involving prior criminal, civil and regulatory enforcement actions against the organization: Standard Bank has no previous convictions for bribery and corruption nor has it been the subject of any other criminal investigations by the SFO. It has, however, been subject to regulatory enforcement action by the Financial Conduct Authority (“FCA”) in respect of its failing in its anti-money laundering procedures. In the instant case failings arose in policy, procedure and training, specifically in respect of anti-bribery and corruption. Although there are features of similarity relating to compliance, they related to different processes and are not connected.
Source: Royal Courts of Justice
In Standard Bank’s case, the SFO found that some of the bank’s anti-bribery policies were unclear and not reinforced effectively through communication and 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,” the court’s opinion stated.
Leveson further highlighted the specific measures Standard Bank took to receive cooperation credit in the eyes of the court. “The bank fully cooperated with the SFO from the earliest possible date by, among other things, providing a summary of first accounts of interviewees, facilitating the interviews of current employees, providing timely and complete responses to requests for information and material and providing access to its document review platform,” he said.
“We will only invite a company into DPA negotiations if our director is persuaded that they have offered genuine cooperation,” Ben Morgan, joint head of bribery and corruption, said in remarks this month at the Managing Risk and Mitigating Litigation Conference. Specifically, that means “prompt reporting, scoping, and conducting your own investigation in conjunction with us, taking into account our interests in doing so and providing access to the kind of material we need to test the quality of evidence gathered and your own conclusions on it,” he said.
In the approved judgement, Leveson said that consideration must also be given to any corporate compliance program in place at the time of the offense and at the time of the reporting, as well as any subsequent improvements the company has made. In this regard, the SFO noted that Standard Bank has made “significant enhancements to its compliance policies, procedures, and processes” since the Financial Conduct Authority conducted a risk and supervisory review in 2011. In particular, Leveson noted that Standard Bank had taken extensive steps regarding its recruitment, risk classification, and due diligence on customers, supported by a strong tone-from-the top to remediate the pre-existing failures.
Taking lessons learned from Standard Bank’s DPA, other companies and their advisers would do well to reflect on the features of the case that Leveson identified as having influenced the court’s assessment of factors determined to be in the public interest, Morgan said.
By entering into the DPA and cooperating in the investigation, Standard Bank will face no criminal offense, so long as it satisfies the terms of the DPA. For a three-year period the company must comply with certain undertakings, including continuing to cooperate fully with the SFO and be subject to an independent review of its existing anti-bribery and corruption controls and policies and procedures regarding compliance with the Bribery Act and other applicable anti-corruption laws.
Additionally, Standard Bank must pay financial penalties of $25.2 million and will be required to pay the government of Tanzania an additional $7 million. The bank has also agreed to pay the SFO’s reasonable costs of £330,000 in connection with the investigation and subsequent resolution of the DPA.
Moving forward, the SFO is likely to approach the first few DPAs with caution, making sure that the cases fall squarely within the criteria of the DPA Code of Practice, says Parkinson. There may be cases in the future where the SFO decides to push the boundaries of those criteria, but for now the focus is on building a precedent-setting body of case law, he says.