UK: UK Bribery: For Cooperating Companies, Virtue Has At Least Some Rewards

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.

Footnotes

1. In this note I refer to the first judgment of 04 November unless otherwise indicated.

2. Which doesn't exist, at least not yet.

3. See, for example, JS Rakoff '"Why Innocent People Plead Guilty" in the New York Review of Books, 2014.

4. Ben Morgan, Speech to Managing Risk and Litigation Conference 1 December 2015, here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.