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Deferred Prosecution Agreements come of age

Tony Lewis
08/12/2015

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United Kingdom

The SFO will be justifiably satisfied with court approval of the first UK DPA but Tony Lewis and Natalie Quinlivan find the case raises questions about scope for application of the new tool

Deferred Prosecution Agreements come of age

The Serious Fraud Office will be justifiably satisfied with court approval of the first UK DPA but Tony Lewis and Natalie Quinlivan of Fieldfisher find the case raises questions about scope for application of the new tool.

After many months of speculation, it was announced on 30 November that Standard Bank Plc ("Standard Bank") now called ICBC Standard Bank plc, has become the first entity in the UK to enter into a Deferred Prosecution Agreement (DPA) with the Serious Fraud Office (SFO).  Standard Bank was the subject of an indictment alleging failure to prevent bribery by two executives at Stanbic Bank Tanzania Ltd., a former sister company of Standard Bank, contrary to section 7 of the Bribery Act 2010.

Speed is of the essence

Lord Justice Leveson at Southwark Crown Court approved the DPA in his judgment noting the fact that Standard Bank self-reported within days of identifying the wrongdoing and cooperated fully with the SEG as one of his principle reasons for doing so. The terms of the ORA suspend the charges for a period of 3 years and require that Standard Bank pay compensation of US$7m to the Government of Tanzania, financial orders payable to HM Treasury totalling US$25.3m, consisting of a financial penalty of US$16.8m and disgorgement of profits of US$8.4m, in addition to the SFO's costs of £330,000 in relation to the investigation and subsequent resolution of the DPA.

Standard Bank also agreed to continue to cooperate fully with the SFO and to be subject to an independent review of its existing anti-bribery and corruption controls, policies and procedures, regarding compliance with the Bribery Act 2010 and other applicable anti-corruption laws.  To this end, it is required to implement recommendations of the independent reviewer, Price Waterhouse Coopers LLP.

This decision marks the end of a long wait for the SFO to strike a plea deal with a company, and follows many months of rumours about potential candidates.  Interestingly, Standard Bank self-reported on 24 April 2013 to the SFO, one day before DPAs were introduced in the Crime and Courts Act 2013, and some ten months before DPAs became available for use.

Only Section 7?

For the SFO the introduction of DPAs in February 2014 heralded a new dawn.  The DPA process is designed to provide commercial organisations with an alternative avenue to investigation and prosecution.  Essentially, if a company self-reports and satisfies the SFO that it will provide sufficient information to enable it to establish a realistic prospect of conviction, the SFO proffers a carrot in return which is a chance for the company to hold its hands up to the wrong, comply with specified steps imposed by the SFO and approved by the court, pay a fine and, potentially, walk away without a conviction.

Lord Justice Leveson's judgment provides the first guidance on how a DPA works in practice.  It is unsurprising that the first DPA involves a section 7 offence (of failing to prevent bribery) as it is a corporate offence not requiring satisfaction of the identification principle.  The identification principle dispenses with this requirement and therefore, provides a more attractive avenue by which to achieve a realistic prospect of conviction in accordance with the full code test for prosecutions as set out in the DPA Code of Practice.  We can expect that future DPAs will, therefore, be Briber Act related.

Long reach demonstrated

It is also notable that the London-based Standard Bank, at that time of the offence, was 100 percent-owned by South Africa's Standard Bank Group.  The DPA effectively demonstrates the Bribery Act's reach when pursuing non-UK companies that maintain a presence in the UK.  Standard Bank's failure to prevent its sister company at that time, Stanbic Bank Tanzania Ltd., and the two named executives in that company from committing bribery in circumstances in which they intended to obtain or retain business or an advantage in the conduct of business for Standard Bank, formed the basis of the offence and opened Standard Bank up to being prosecuted by the SFO.  The corrupt behaviour took place overseas, and the defence under section 7(2) of the Bribery Act, the existence of "adequate procedures" to prevent bribery, was not available in this instance due to the failure of Standard Bank to conduct its own KYC and due diligence into a local Tanzanian partner.

Corporate v. individual interests

In saving its skin a DPA may encourage a company to highlight the roles of individuals, who thereby become exposed to potential prosecution themselves (and are not able to enter into a DPA).  The Statement of Facts accompanying the DPA provides detail of the corrupt behaviour by individuals in this case.  However, while the SFO could prosecute Standard Bank, as it is "carrying on business" in the UK, its reach does not go as far as prosecuting the two executives, Bashi Awale or Shoes Sinare, as neither are UK citizens nor are they based in the UK. Instead it has been reported that the Prevention and Combating of Corruption Bureau (PCCB) in Tanzania will commence its own investigation.

Cooperation expectation

When approving the DPA, Lord Justice Leveson emphasised the fact that Standard Bank self-reported within days of identifying the wrongdoing and cooperated fully with the SFO.  This reiterates what is stated in the DPA Code of Practice, that cooperation is a key factor that the prosecutor may take into account when deciding whether to enter into a DPA.  The level of cooperation by Standard Bank was also stated as a factor when considering the reduction in the financial penalty imposed by Lord Justice Leveson.  The fact that Standard Bank promptly reported its own conduct and cooperated with the SFO's subsequent investigation meant that a full reduction of one third was justified and appropriate in the circumstances (US$25.2m to US$16.8m).

In light of the above it can be expected that future DPAs may only be approved by the court where there has been full cooperation.  This point has been driven home by the joint head of bribery and corruption at the SFO, Ben Morgan.  Referring to this first DPA, he noted that the bar has been set high and that "where it is not met the SFO have the appetite, stamina and resources to prosecute in the ordinary way".  Given that the one third reduction on sentence secured via a DPA could also be anticipated for a guilty plea, but without the burden of full disclosure and cooperation, companies invited to consider a DPA in future might be tempted to gravitate towards a guilty plea route.  Particularly if they have a sense that full disclosure and cooperation could unearth irregularities that they, and the SFO, are not aware of.

The DPA has come of age, but it remains to be seen whether it will flourish into adulthood.

 First published by Fraud Intelligence on 7 December 2015

 

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