Milestone Reached in UK Bribery and Corruption Enforcement

An application brought by the UK's Serious Fraud Office (SFO) for a so-called Deferred Prosecution Agreement (DPA) was approved in court in London on Nov. 30, 2015, marking a historic milestone for UK bribery and corruption enforcement as this was the first time that a DPA has been adopted.

The UK's Bribery Act 2010 (the Act) has been vaunted in certain quarters as the toughest anti-corruption legislation in the world, and although successful prosecutions have been brought under it some have criticized enforcement as being too slow-paced. Some of this criticism is not well-founded ' the SFO has certainly been active in pursuing a number of major investigations. With this latest development, however, a particular turning point may have finally been reached. The Act has extra-territorial effect. Therefore, U.S. corporate counsel need to be aware of its various ramifications including the application of this new corruption prosecutor's tool.

What Are the UK Bribery Rules?

The Act reached the statute book in 2010, but did not come into force until 2011, although similar laws had been in place in the UK since the 1800s. Under it, the UK courts have jurisdiction over offenses committed outside the UK where the person committing the offense has a “close connection” with the UK either by having British nationality, by being ordinarily resident in the UK, where a business is incorporated in the UK, or where some of the bribery acts took place on UK soil (even if no nationals or residents were involved). This reach has been especially important in some sectors such as electronics, oil and gas and financial services because of the high number of UK nationals and UK residents involved in these industries.

The 2010 Act consists of four offenses, including a new offense of failure to prevent bribery. This essentially means that a company commits an offense if a person “associated” with it bribes another person intending to obtain or retain business or a business advantage for the company. A person is “associated” with the company if he performs services for or on its behalf, regardless of the capacity in which he does so. Therefore, agents, employees, intermediaries, suppliers and so forth all fall under this scope and could therefore make a company guilty of the failure to prevent bribery offense. The potential risk of a company being liable if a person “associated” with it bribes another person for the company's benefit is considered by many as an extremely serious bribery risk.

What Is a DPA?

A DPA is essentially a kind of plea bargaining tool for UK prosecuting authorities such as the SFO to reach a deal with corporate offenders. The DPA process came into effect in 2014 ' more details on the process to be followed for DPAs can be found in the UK's Deferred Prosecution Agreement Code of Practice. In procedural terms, a company is charged with an offense, but criminal proceedings are automatically suspended and the company agrees to a number of conditions. If these conditions are not met, the proceedings will be resumed. Entering into a DPA is a transparent and public process, and, crucially, a judge must agree that a DPA is the suitable means of resolution and that its terms are appropriate to the circumstances of the matter at hand, which is announced in open court. It was this open-court part of the proceedings that took place on Nov. 30, attended by the authors' firm, Cordery. The process involved the SFO going in detail through the so-called “Statement of Facts” following which a very senior judge, Lord Justice Leveson, approved the DPA and delivered his judgment stating that this DPA should set the standard for future ones.

What Was This DPA About?

This case concerned a financing transaction undertaken on behalf of the Government of Tanzania by Standard Bank plc (a UK company), now called the ICBC Standard Bank (a subsidiary of Industrial and Commercial Bank of China Limited), and its then-sister company, Stanbic Bank Tanzania Limited.

The focus of the matter was a U.S. $6 million payment made in March 2013 by Stanbic Bank to a local partner in Tanzania, Enterprise Growth Market Advisors. It was reported, however, that nothing was found regarding any work actually done or service performed by Enterprise Growth Market Advisors with respect to the transaction. The allegation is that the payment was intended to induce members of the Government of Tanzania to favor Stanbic Bank and Standard Bank's proposal for a U.S. $600 million private placement to be carried out on behalf of the Government of Tanzania in connection with raising funds for key infrastructure projects. The transaction was a significant one in terms of revenue for Standard Bank and Stanbic Bank.

Having been alerted to the issue and begun internal action in April 2013, Standard Bank instructed its external lawyers to report the matter immediately to the UK's Serious and Organised Crime Agency and then the SFO, which they duly did. The bank also instructed its external lawyers to undertake an investigation, the results and evidence of which were disclosed to the SFO in July 2014. The SFO then reviewed the material and conducted its own interviews of UK-based employees (revealing excerpts of which appear in the “Statement of Facts” regarding implementation of the bank's policies). After that, the SFO decided that a DPA might be appropriate. The SFO began a negotiation process to agree to the terms of the DPA, following which it sought approval from the court. A preliminary closed-door court hearing took place earlier in November 2015 and the process ended with the Nov. 30 open court hearing and conclusion.

What Were the Terms of the DPA?

Under the DPA Standard Bank has to pay: financial orders of U.S. $25.2 million; a further U.S. $7 million in compensation to the Government of Tanzania; and, the SFO's costs of UK '330,000 in relation to their work.

In addition, Standard Bank has agreed to continue to cooperate fully with the SFO and be subject to an independent review of its existing anti-bribery and corruption controls, policies and procedures, including implementing the recommendations of an independent reviewer. The term of the DPA is three years.

It should be noted that Standard Bank has also agreed to terms with the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC). A penalty of U.S. $4.2 million has been agreed between the bank and the SEC concerning separate related conduct. What are the lessons to be learned?

The use of a DPA is now clearly a viable possibility in the UK (a further one is believed to be on its way soon). But it must be stressed that their use is not only discretionary, but they may well also be confined to cases of failure to prevent bribery.

Clearly there was a significant compliance failure on the part of the bank (which had previously experienced a serious anti-money-laundering compliance failure) regarding both KYC and due diligence. No anti-bribery due diligence was carried out on Enterprise Growth Market Advisors in what is a high-risk country ' it was only when high-figure cash withdrawals (constituting the U.S. $ 6 million figure in question) were made from a collection account set up by the bank for Enterprise Growth Market Advisors that bank staff raised concerns. The value of having in place clear and strong policies and robust procedures along with undertaking serious, thorough and regular training of all relevant personnel cannot be emphasized enough.

When such problems occur it is imperative to act fast, especially as it may improve the chances of obtaining a DPA. The bank was given serious credit for its quick internal steps and its disclosure action, along with its cooperation (the financial penalties were reduced by a third of what they might have been, and even the SFO costs seem to reflect this credit).

Although the length of the term of a DPA will vary according to the circumstances of a given case, the three-year period in this case provides at least a starting point for future cases.

Finally, as for the hearing part of the process, clearly everything had been resolved prior to the Nov. 30 open-court hearing, making the latter more of a validating and declaratory process (i.e., it is not at all adversarial), with the lead taken by the SFO and little intervention required from the judge. Again, this emphasizes the need for a proper cooperative process with the SFO when seeking a DPA to ensure that trust is in place between the parties and any issues are resolved before the courtroom doors open.

This case ' together with other recent bribery cases in the UK ' shows that the UK has a real appetite to use the extra-territorial powers of the Bribery Act 2010 to reach into parts of the world like Africa to try and stamp out bribery. Traditionally, the U.S. has taken the lead in international anti-bribery enforcement. It is clear from this case however that the U.S. will not be fighting alone.

Andr' Bywater and Jonathan Armstrong are commercial lawyers with Cordery in London, UK, where they focus on regulatory compliance, processes and investigations. Reach them at [email protected] and [email protected], respectively.