Author(s):
Malcolm Aboud, Daniel Fombonne, Riyaz Dattu
Dec 11, 2015
On November 30, 2015, a U.K. court approved for the first time the use of a deferred prosecution agreement (DPA). The agreement was concluded between the U.K.’s Serious Fraud Office (SFO) and ICBC Standard Bank (Standard Bank), a joint venture formed in 2015 between Standard Bank Plc and the Industrial and Commerce Bank of China (ICBC). Standard Bank was indicted and was to be charged under section 7 of the Bribery Act 2010 based on facts and circumstances that occurred before the forming of the joint venture.
This case is also the first one in which the SFO has used this provision, which holds commercial organizations liable for failing to prevent bribery by an associated person. A full defence to this charge is available when the commercial organization is able to demonstrate that notwithstanding the particular instance of bribery, it had adequate procedures in place to prevent persons associated with it from committing bribery.
The prosecution related to a March 2013 US$6-million payment made by Standard Bank Plc’s former sister company Stanbic Bank Tanzania (Stanbic). The SFO alleged that the payment – made to a local partner in Tanzania, Enterprise Growth Market Advisors Limited (EGMA), owned by three shareholders, one of whom was the Commissioner of the Tanzanian Revenue Authority (therefore a foreign public official) – was a bribe. EGMA was to receive 1% of the $600 million that was to be raised by Stanbic for a private placement for the Government of Tanzania. The evidence before the SFO allowed for a determination that Stanbic and its senior executives – all considered “associated persons” within the meaning of the Bribery Act – had provided a bribe to EGMA of the 1%, so that the owners of this local company would induce representatives of the Government of Tanzania to favour Stanbic and Standard Bank Plc’s proposal for raising US$600 million in the private placement.
The Court found that notwithstanding the potential for corruption of this nature, which would have been well known to Standard Bank Plc, the bank did not have adequate measures and systems in place to guard against such risks. For instance, Standard Bank Plc did not make the necessary inquiries about EGMA or its role in the private placement transaction.
As part of the DPA, Standard Bank will pay $25.2 million in financial penalties ($8.4 million in profit disgorgement and a penalty of $16.8 million), $7 million in compensation to the Government of Tanzania, and £330,000 costs in relation to the SFO’s investigation and subsequent resolution of the DPA. Throughout the case, the SFO worked with the U.S. Department of Justice and the Securities and Exchange Commission (SEC). Standard Bank has also agreed to a penalty of $4.2 million to the SEC.
A DPA is an agreement between an enforcement authority and the accused, suspending prosecution in exchange for payment of certain fines, improvement of internal control systems and ongoing cooperation with the enforcement authorities. DPAs usually provide for these conditions to be met for a certain period of time, and if there is no default by the accused, the charges are abandoned. The authorization to use DPAs is fairly new under English law. It was introduced by legislation in February 2014, and allows a Court to determine that the public interest is best served by not mounting a prosecution and to assess whether the proposed DPA is fair, just and reasonable. The United States law has allowed for use of DPAs for some time now, but generally Court approval of the DPA is not required. To date, there is no case of a DPA being used or authorized under Canadian criminal laws.
In this case, Standard Bank was able to obtain the benefit of a DPA for a three-year period because it self-reported the wrongdoing even before it had concluded its own internal investigation, and did so expeditiously. The Court, in approving the DPA, noted that it had placed considerable weight on the fact that Standard Bank had contacted the SFO within days of the suspicions of Stanbic paying bribes coming to its attention, and before its solicitors had commenced (let alone completed) their investigation. The cooperation included identifying and making available relevant witnesses for interview, conducting an internal investigation, disclosing relevant documents and otherwise fully cooperating with the SFO. The charge will be abandoned after three years if Standard Bank complies with the terms of the DPA.
The Court’s rendition of the factors required before approval will be granted for a DPA reflects statements made previously by senior officials at the SFO. Ben Morgan, the joint head of the bribery and corruption unit at the SFO, expressed the view in his speech at the Annual Anti-Bribery and Corruption Forum in London in October 2015 that self-reporting was a precondition to obtaining a DPA. In particular, Morgan emphasized that even where victims had been compensated, wrongdoers had been fired and remediation had taken place, it would not be in the interest of justice to provide for DPAs in the absence of self-reporting, and also added that companies should be reporting to regulators early in the investigation process:
We expect early engagement. We don’t want to hear from you every five minutes, and we accept that you need enough time and space to have an initial look at an allegation that comes to your attention. But nor do we want the first time we hear from you to be at the end of a major internal investigation, months if not years after the conduct in question has surfaced, and in particular after multiple witnesses have been interviewed and re-interviewed extensively.
The requirement to self-report potentially illegal conduct, at the earliest possible time, is also a requirement to obtain a DPA or a non-prosecution agreement (NPA) from the U.S. enforcement authorities. In his keynote address on November 17, 2015, at the American Conference Institute’s FCPA Conference, Andrew Ceresney, Director, Division of Enforcement for the SEC, stated that a company must promptly self-report misconduct in order to be eligible for a DPA or NPA in an FCPA case. Ceresney also noted, however, that self-reporting alone is not enough, saying determinations on whether to enter into a DPA or NPA are made having regard to a broad range of factors including the corporation’s self-policing, remediation and cooperation.
As noted, Canada has not, as of yet, pronounced on whether it will adopt either the U.K. or U.S. approach on the use of DPAs and NPAs in relation to foreign bribery offences under the Corruption of Foreign Public Officials Act or domestic bribery offences under the Criminal Code. However, there is some pressure on the Canadian government to consider this approach to the settlement of such criminal cases. The single loudest advocate for Canada to adopt DPAs and NPAs is SNC Lavalin Group Inc., which is dealing with charges under both these criminal statutes. It is scheduled to appear in Court in February 2016 to answer to these charges.