UK’s first Deferred Prosecution Agreement – key themes emerge

In a landmark judgment at the High Court in London, Lord Justice Leveson approved the first UK Deferred Prosecution Agreement (DPA), agreed by the UK’s Serious Fraud Office (SFO) and ICBC Standard Bank.

The DPA relates to alleged offences under section 7 of the UK Bribery Act 2010 in connection with the bank’s failure to prevent bribery by two executives at a third party financial institution in East Africa. The allegations focus on inadequate systems to prevent bribery. No allegation of knowing participation in an offence of bribery is alleged either against Standard Bank or its employees.

The judgment is available in full here. The SFO’s press release is available here.

Penalties

In summary, the court approved a DPA which will last for a 3-year period. Penalties totalling US$32.2m imposed include:

• a fine of US$16.8m;
• a compensation payment of US$6 million plus interest of over $1 million (to be paid to the government of Tanzania);
• US$8.4m in disgorgement of profits;
• Payment of costs incurred by the SFO (£330,000).

Key themes: engagement and co-operation

Key themes emerging in connection with the DPA process, which provide important lessons for corporates determining how to engage with UK authorities in the DPA process include:

• Importance of early engagement with the SFO: the bank took significant steps to bring matters to the attention of the SFO as soon as possible. The bank appointed a law firm very quickly after issues came to light, and within three weeks of the first report the SFO and the Serious Organised Crime Agency were informed. The “promptness of the self-report” was “of particular significance”.
• Continuing communication with the SFO: the SFO was “fully appraised” of the results of the internal investigation.
• Significance of information reported: the bank brought information to the attention of SFO that the UK prosecution authorities would not otherwise have discovered.
• Provision of first account information: the bank provided to the SFO summaries of first accounts of the alleged conduct.
• Full co-operation throughout the DPA process: the bank agreed to co-operate fully with the SFO, including maintaining all materials relating to investigation.
• Significance of agreement to review of policies and procedures: co-operation and compliance obligations were “critical” to the agreement. The Court found that the applicable policy was unclear and not reinforced effectively. Training did not provide sufficient guidance about relevant obligations and procedures. The bank agreed, at its own expense to commission and submit to an independent review of its existing internal anti-bribery and corruption controls, policies and procedures.
• Impact of early admission on level of fine: the fine imposed represented three times the total fee earned by the bank, reduced by one-third to represent the “earliest admission of responsibility”.
• Absence of protection for individuals: it is a condition of the DPA that there is no protection against prosecution of any present or former officer, employee or agent or against the bank for conduct not disclosed by it prior to the date of the DPA (or any future criminal conduct).
• Critical role of the court: Lord Justice Leveson stated that “it is important to emphasise that the court has assumed a pivotal role in the assessment” of the terms of the DPA. He found that “there is no question of the parties having reached private compromise without appropriate judicial consideration of the public interest”. Relevant materials have now been published to allow “public scrutiny”.

Regulatory co-operation

Significantly, the Court heard that the SFO consulted with the US Department of Justice in connection with the determination of an appropriate level of fine. In an indication that the UK authorities will seek to impose penalties comparable to those levied in the US, the SFO sought confirmation from the DOJ that the fine element of the DPA was commensurate to the level of fine the DOJ would issue in this case. Significantly, the US Securities and Exchange Commission confirmed that it would take into account the UK DPA in any proceedings it brings arising out of this conduct. The Government of Tanzania was also consulted. The UK Foreign and Commonwealth Office and the UK Financial Conduct Authority also assisted in resolving this investigation and deferred prosecution.

Timeline

The period from reporting of the issue by the bank to the conclusion of the DPA process was just over two and half years. The bank made its first report to the SFO in April 2013. On 4 November 2015, the Director of the SFO made an application in relation to a proposed DPA between the SFO and the bank. Within one month the DPA was agreed and approved.