Deferred prosecution agreements – the gold rush

February 2016  |  SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION

Financier Worldwide Magazine

February 2016 Issue

Last year was unusually busy for the UK’s Serious Fraud Office (SFO) and its director, David Green CB QC, says the SFO has “got its mojo back”. In the last few weeks of 2015 alone, the SFO secured its first ever deferred prosecution agreement (DPA) with ICBC Standard Bank plc (Standard Bank), obtained a conviction following a lengthy trial of the first LIBOR defendant, Tom Hayes, and saw another corporate, Sweett Group Plc, be the first to admit its guilt to a breach of section 7 of the UK Bribery Act 2010 (outside of a DPA) in relation to the construction of a hotel in Dubai.

The first UK DPA was approved on 30 November 2015 by Lord Justice Leveson at Southwark Crown Court, sitting at the Royal Courts of Justice. The SFO and Standard Bank had negotiated the DPA in respect of Standard Bank’s alleged failure to prevent bribery, contrary to section 7 of the Bribery Act 2010. LJ Leveson found that the “only inference” was that the underlying arrangements were corrupt.

At the time in question, Standard Bank was a UK subsidiary of South Africa’s Standard Bank, Standard Bank Group Limited. Following its voluntary disclosure to the SFO and subsequent investigations, Standard Bank was made the subject of an indictment alleging a contravention of section 7 of the Bribery Act 2010, which was immediately suspended once the DPA was approved by the Court. This was the first time that any prosecutor has used the section 7 offence.

The DPA included a statement of facts in which it was agreed that a $6m payment by a former sister company of Standard Bank, Stanbic Bank Tanzania, was made in March 2013 to a local partner in Tanzania, Enterprise Growth Market Advisors (EGMA). It was accepted that the payment was intended to induce members of the government of Tanzania to show favour to Stanbic Bank Tanzania and Standard Bank’s proposal for a US$600m private placement to be carried out on behalf of the government of Tanzania. The placement generated transaction fees of US$8.4m, shared by Stanbic Tanzania and Standard Bank.

LJ Leveson highlighted several factors which led him to conclude that a DPA was in the public interest in this case. Most notably, the first factor is that there was no evidence to suggest that any Standard Bank employees were aware that the payment to EGMA constituted a bribe. Equally, LJ Leveson highlighted the speed at which Standard Bank had reported itself to the SFO (i.e., within a week of discovering the facts that led to the DPA) and its “genuinely proactive approach”, as well as the full cooperation it provided to the SFO by “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”. Standard Bank’s previous good character in respect of bribery or corruption convictions was also highlighted.

Under the terms of the DPA, Standard Bank agreed to the payment of a number of financial penalties and reparations. It is required to pay the SFO a $16.8m fine, disgorge $8.4m of profit and pay $7.05m to the government of Tanzania. It also agreed to pay $4.2m to settle related civil charges by the US Securities and Exchange Commission, along with the SFO’s costs of £330,000 incurred as a consequence of its investigations.

Non-financial penalties imposed under the DPA include the requirement for Standard Bank to continue to cooperate fully with the SFO and other agencies, including multilateral banks, in any matters arising out of the subject-matter of the DPA and to be subject to an independent review, at its own expense, of its existing anti-bribery and corruption controls, policies and procedures regarding compliance with the Bribery Act 2010. It is also required to implement the recommendations of the independent reviewer.

The DPA will last for a period of three years and during that time the indictment laid against Standard Bank is suspended. If Standard Bank fully complies with the terms of the DPA, the proceedings against it will be discontinued by the SFO within 30 days of the agreement’s expiry. However, if the SFO believes that Standard Bank knowingly provided inaccurate, misleading or incomplete information to the SFO during their negotiations, it has the right to institute new proceedings against the bank.

Since the announcement of the first DPA, it has been reported that several other companies have approached the SFO with the aim of obtaining a DPA. Ben Morgan, Joint Head of Bribery and Corruption at the SFO, said recently that “it is a high bar for a DPA to be suitable, and where it is not met we have the appetite, stamina and resources to prosecute in the ordinary way”. He emphasised that corporates must offer genuine rather than ‘pseudo-cooperation’ which meant prompt reporting, scoping and conducting the internal investigation in conjunction with the SFO, taking into account the SFO’s interests when doing so and providing access to the material the SFO would need to test the quality of the evidence gathered and any conclusions on it.

Therefore, any corporate that wishes to secure a DPA must ensure that it acts swiftly and proactively even to be in with a chance. Providing summaries of first accounts with interviewees will inevitably throw directors, senior managers and other employees of a company, who have cooperated with the company, into the firing line as the protection afforded by a DPA will not extend to them, although there may be the possibility of immunity under the Serious Organised Crime and Police Act 2005. Without any certainty of their position, an employee who is on the periphery of the corrupt activity may find themselves under pressure to provide the company with the information it so desperately needs to attain the high bar for the DPA whilst at the same time wishing to avoid any individual prosecution themselves. For this reason, there are growing calls for DPAs to be extended to individuals in order to encourage them to be open and frank while at the same time demonstrating their rehabilitation.

Despite its recent successes, the SFO shows no signs of resting on its laurels. David Green CB QC has started the New Year with renewed calls for a law to be introduced under which companies would be criminally liable for failing to prevent wrongdoing that benefited their business. It was only in September 2015 that the government made a U-turn and announced plans to stop work on creating a new offence for failing to prevent economic crime. The Ministry of Justice cited two reasons: firstly, there had been no prosecutions under the model Bribery Act offence, and secondly, there was little evidence of corporate economic wrongdoing going unpunished. However, since then the government has confirmed the introduction of a new corporate criminal offence of failure to prevent the facilitation of tax evasion, so the issue may be placed back on the agenda.

With more DPAs in the pipeline and the SFO continuing to press for further reforms to corporate criminal liability, 2016 should prove to be an interesting year for corporates and their advisers.

 

Elinor Lloyd is a managing partner at CCG Legal. She can be contacted on +44 (0)207 760 7590 or by email: elinor.lloyd@ccg-legal.com.

© Financier Worldwide

BY

Elinor Lloyd

CCG Legal

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