Type: Client Alerts
Introduction On Monday 30 November, an English court approved a Deferred Prosecution Agreement (DPA) between the Serious Fraud Office and Standard Bank, in connection with payments made in Tanzania. This was the first DPA approved by the courts and the first time the SFO had charged the “failure to prevent bribery” offence under section 7 of the Bribery Act.
There is, already, no shortage of instant comment on the case from lawyers, journalists and ABAC aficionados worldwide. This isn’t surprising since section 7 is the most controversial part of the Bribery Act and DPAs are completely novel, on this side of the Atlantic at least.
A good summary of the case can be found on the SFO’s own website. The process of obtaining a DPA means there are in fact two judgments, with the first going into more detail of the factors considered by the court and the second essentially re-confirming the first. They are both available here1.
So what can we learn from the case? The judgment is reasonably extensive and is generally helpful to commercial bodies and their advisers, although I have a few concerns about it which I explore below. To summarise this note:
- The outcome is broadly supportive of the SFO’s advertised approach to corporate bribery, i.e. that self-reporting is worthwhile.
- The penalties imposed reflect quite a hard-line approach to corporate crime among the judiciary.
- Aspects of the judgment should be treated with caution on topics not directly within its purview, such as the nature of the adequate procedures defence.
- The case exemplifies both the pros and cons of DPAs, plea-bargaining and the like. There are some topics on which the rigour of contested submissions would have improved the analysis and perhaps specific outcomes. However, the fact that the SFO and the court have rewarded the bank’s ethical approach to self-reporting with at least some leniency is a step in the right direction.
Underlying Facts In 2012 the Tanzanian government wanted to raise funds. Standard Bank (based in South Africa) and a Tanzanian-based subsidiary, Stanbic, offered to assist by means of a placement of US$600 million of sovereign debt instruments. The bank’s original fee was 1.4% of funds raised. A further payment of 1% was then offered by Stanbic to a “local partner”, a Tanzanian company whose shareholders included current or former members of the Tanzanian government. There is no evidence that the local partner did anything to earn the payment and the inference is that the 1% (i.e. US$6 million) was intended as an improper inducement to (un-identified) officials to approve the engagement of Standard / Stanbic. Within ten days of the payment to the local partner’s account, most of the $6 million had been withdrawn in cash.
Importantly, the SFO did not allege that anyone at Standard Bank itself knew the 1% payment was for an improper purpose. Just as importantly, once Standard’s headquarters knew of the payment by Stanbic, an investigation was started and a report of its concerns was made to the UK authorities very rapidly, a remarkably ethical response. The UK had jurisdiction because of the considerable business which Standard does in the country.
This scenario could be taken from about page 15 of “ABAC For Dummies”2 as a classic case justifying a DPA rather than a prosecution. The inference of bribery available from the facts is quite clear, but the lack of a guilty mind at the bank itself means section 7 was the only realistic way of prosecuting these facts. It’s clear that a lot of good work has been done by Standard, its lawyers and the SFO, including the Director, to ensure that the case for a DPA was as strong as possible.
The agreement reached involved payment of US$33 million, a revision of the bank’s ABAC procedures and other remedial measures in exchange for suspending the prosecution. If the conditions are complied with, the SFO will drop the prosecution after three years. The SFO applied to the court for approval. Such was the importance of the first case that the judge allocated to it was the President of the Queen’s Bench Division, Sir Brian Leveson.
The Role of The Court In England, the role of the court is not merely to rubber-stamp an agreed settlement. It must consider the proposed DPA on its merits, focussing in particular on two main questions:
Firstly: whether resolution by way of a DPA rather than a prosecution would be in the interests of justice. Secondly, whether the terms of the DPA are “fair, reasonable and proportionate”.
In doing this, of course, the court reveals its approach to sentencing policy in particular, which informs prosecution policy, which (should) inform the policies of millions of companies subject to the Bribery Act.
But the task is not without difficulty. Courts are used to hearing opposing arguments, but when a DPA is presented to it both parties want all its provisions to be upheld. No-one is pressing a contrary position. Judges themselves recognise this as a problem and this judgment, in places, illustrates its effects.
Was Resolution By DPA In The Interests of Justice? Obviously the court’s conclusion on this was “yes”. The court placed a good deal of reliance on the factors in favour of a DPA published by UK prosecuting agencies as the DPA Code of Practice. The priorities of the Code are clearly endorsed by the judgment.
One relevant factor is how serious the conduct alleged is. The more serious the conduct (in terms of legal consequences), the more likely it is that the case requires prosecution rather than a DPA. The court recognised that although active bribery was serious, the bank itself was not to be charged with this but merely a failure to prevent it by others. This reduced the seriousness of the conduct and militated in favour of a DPA.
The judgment also placed heavy emphasis on the fact of the self-report by the bank (which was very early in this case - the SFO was made aware of the basic facts about a month after they were discovered by the bank’s head office) and the subsequent active cooperation of the bank with the SFO in investigating. We can expect this aspect to be loudly proclaimed by the SFO in the next weeks and months, with some justification, since it is at least a partial answer to the “why should we report ourselves” question asked by so many companies.
The bank’s “good character” (i.e. the lack of previous bribery convictions) and improved compliance programme also counted in favour of a DPA. It was also relevant that the bank has recently undergone a merger with ICBC, making it a substantially different entity now to when the conduct took place.
Interestingly, not much was made of whether assistance was given in investigating individual bank employees or agents, in fact no bank employees were deemed criminally culpable or even potentially so. Reading between the lines, it seems unlikely that any individuals will face prosecution in this country at least. It is good to see that the SFO does not judge the value of cooperation by the bank in terms of whether they can obtain individual scalps.
Were The Terms Reasonable? The headline figure to be paid by the bank is approximately $33 million, which compares to an expected fee from the bribery of $8.4 million.
The key terms of the agreement were:
- A financial penalty of $16.8 million (reduced by a third from the likely sentence on conviction after a trial);
- Compensation to Tanzania of $6 million plus over $1 million in interest;
- Disgorgement of profit by the bank of the fees earned, coming to $8.4 million;
- Prosecution costs of £330,000 (about $500,000);
The compensation and disgorgement elements seem reasonable in the circumstances. But I am not so sure about the actual level of penalty. The court found that the culpability in this case was closer to “high culpability” than to “medium culpability” and came to a penalty figure by multiplying the $8.4 million fee to Standard by 300%, yielding $25.2 million. This was reduced by a third to reflect a (notional) guilty plea, yielding $16.8 million.
Of course these are matters where courts have a good deal of discretion. Nevertheless is this case really one of “high” culpability? Payments to government officials are serious offences but the bank wasn’t actually accused of paying anybody. It was only accused of failing to prevent bribery. A failure to prevent wrongdoing by third parties is not a crime of intent, recklessness or even negligence. It involves no proof of mens rea by the accused. Indeed, in this case there was insufficient evidence to prosecute any staff at the bank.
The judgment recognised that the offence is “not a substantive bribery offence” (as stated in the DPA Code) but appears to have given this little weight in considering culpability. It quotes extensively from the well-known remarks of Lord Justice Thomas (now the Lord Chief Justice) in R v Innospec (2010) about the seriousness of corruption generally. However Innospec, though it was an important decision on the SFO’s use of its civil settlement powers, and a strong signal to the SFO to raise its game, was not a section 7 case. The underlying facts of that case were of long-term direct bribery with extraordinarily anti-social effects for millions of people, and the culpability was very high indeed. Defence counsel would argue that Innospec should not be taken as the touchstone for sentencing a section 7 case of this nature.
The issue of whether the company might have had a defence of “adequate procedures” to a section 7 charge was also considered by the court, albeit briefly, when considering culpability. The discussion here is disappointing because it focusses on the specific compliance problems connected to the conduct in Tanzania, rather than whether there was an effective anti-bribery policy or culture across the bank as a whole. I’m not sure this is the right approach. When sentencing an organisation, it is relevant to consider whether the misfeasance was a case of “a few bad apples” or more widespread systemic failings. If the latter, the culpability may be higher than the former.
At one point the judge observed: “Although there were bribery prevention measures in place, these measures did not prevent the suggested predicate offence”. If the adequate procedures defence was actually in issue (in a trial) this would be a dangerous example of begging the question. The question of whether ABAC procedures were, in general, adequate cannot be determined by whether the particular bribes charged have slipped through the net. If it could be, then no commercial organisation would ever be able to invoke the defence.
Given the context of the discussion, it’s likely that the judge did not intend this statement to be any more than an observation on culpability when considering a possible sentence. But it’s the sort of language that invokes sharp intakes of breath among those working in bribery law.
The Ghosts of Innospec and US Practice I have already mentioned the judgment’s references to Innospec, which plainly informed the approach of the SFO, and the court, to the DPA regime. Further evidence for this appears towards the end of the judgment. In Innospec, Thomas LJ mentioned that fines in the US are substantial and higher than those which were proposed by the SFO in that case. His view was that a fine comparable to that imposed in the US should be the starting point.
Leveson LJ’s judgment took this position further. When considering whether the overall result is fair, reasonable and proportionate, he expressly considered whether the penalty proposed would be comparable to that imposed by US authorities under US law.
He relied on the fact that “the US Department of Justice has confirmed that the financial penalty is comparable to the penalty that would have been imposed had the matter been dealt with in the United States and has intimated that if the matter is resolved in the UK, it will close its inquiry.”
This raises quite a few questions. Of course, there are benefits to consistency in sentencing across jurisdictions, but should an English court give weight to the practices of other governments when applying English criminal law? DPAs are unique to this jurisdiction. They are not mirror images of settlements under the FCPA or other US laws. This is not the place for a discussion of US sentencing practices, but they are obviously the product of that country’s own laws and culture and many distinguished US jurists disparage the system’s excesses3. If US practice is relevant, why not that of other European Union or common-law countries?
One cannot help suspecting that on this and some of the other elements of the judgment, the court would, again, have benefitted from the sort of sharper debate which a DPA application makes impossible.
In Conclusion: The Conclusion A striking feature of the first judgment is the concluding paragraph. The Judge obviously thought it was important because he repeated it verbatim towards the end of his second judgment. It is worth setting out in full here:
“It is obviously in the interests of justice that the SFO has been able to investigate the circumstances in which a UK registered bank acquiesced in an arrangement (however unwittingly) which had many hallmarks of bribery on a large scale and which both could and should have been prevented. Neither should it be thought that, in the hope of getting away with it, Standard Bank would have been better served by taking a course which did not involve self report, investigation and provisional agreement to a DPA with the substantial compliance requirements and financial implications that follow. For my part, I have no doubt that Standard Bank has far better served its shareholders, its customers and its employees (as well as all those with whom it deals) by demonstrating its recognition of its serious failings and its determination in the future to adhere to the highest standards of banking. Such an approach can itself go a long way to repairing and, ultimately, enhancing its reputation and, in consequence, its business.
Could anyone reasonably disagree? On the facts of this case, not really. Standard has done the right thing.
But the truths expressed by this peroration (which is already being repeated verbatim in speeches by SFO officials4) are fact-specific. There will be cases which are not so clear-cut. Companies will continue to weigh up the costs and benefits of self-reporting, whether to engage in cooperation, the scope of any investigations, relying on legal privilege and all their other entitlements. The availability of DPAs and the merits of self-reporting and cooperation in some cases are powerful tools in the hands of prosecutors. We should be vigilant to ensure they do not overrun their limits or undermine legitimate rights of defence.
- In this note I refer to the first judgment of 04 November unless otherwise indicated.
- Which doesn’t exist, at least not yet.
- See, for example, JS Rakoff ’“Why Innocent People Plead Guilty” in the New York Review of Books, 2014.
- Ben Morgan, Speech to Managing Risk and Litigation Conference 1 December 2015, here.
Client Alert 2015-334